Investment Executive Sentenced in Manhattan Federal Court to 21 Months in Prison for Multi-Million-Dollar Insurance Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALLEN REICHMAN, a former Executive Director of Investments at a New York investment bank and financial services company, was sentenced today to 21 months in prison and $10 million in restitution for defrauding his employer in connection with the fraudulent purchase of an Oklahoma-based insurance company. REICHMAN pleaded guilty in February 2015 before Magistrate Judge Henry B. Pitman. U.S. District Judge Naomi Reice Buchwald imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “To line his own pockets, Allen Reichman fraudulently induced his investment firm to enter into a $30 million loan transaction with an Oklahoma insurance company. His dishonest scheme caused the collapse of the insurance company, and has now led to his loss of liberty.”
According to the Information, other documents filed in Manhattan federal court, and statements made during court proceedings:
During the relevant time period, REICHMAN was an executive at an investment bank and financial services company headquartered in New York, New York (the “Investment Firm”). From July 2008 to November 2009, REICHMAN conspired with Charles J. Antonucci, Sr., and Matthew L. Morris, the President and Senior Vice President, respectively, of Park Avenue Bank, a New York bank, and Wilbur Anthony Huff, a Kentucky businessman who controlled numerous entities located throughout the United States, to defraud the Investment Firm and Oklahoma insurance regulators regarding Antonucci’s purchase of Providence Property and Casualty Insurance Company (“Providence P&C”), an Oklahoma-based insurance company that was owed $5 million by a company Huff controlled. Providence P&C was licensed to operate by the Oklahoma Insurance Department (“OID”), which regulated various practices of Oklahoma insurance companies. Under the OID’s regulations and applicable Oklahoma law, Providence P&C was required to maintain a certain amount of assets to ensure that adequate funds were on hand to pay policyholders’ claims and anticipated claims.
REICHMAN and his co-conspirators schemed to defraud the Investment Firm into providing a $30 million loan to finance Antonucci’s purchase of Providence P&C and to defraud Oklahoma insurance regulators into approving the purchase. Antonucci’s purchase of Providence P&C was financed by a $30 million loan from the Investment Firm, which used Providence P&C’s own assets, including the reserve assets, as collateral for the loan. Because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, REICHMAN, Huff, Morris, and Antonucci made, and conspired to make, a number of material misstatements and material omissions to the Investment Firm and Oklahoma insurance regulators concerning the true nature of the financing for the purchase. Specifically, Investment Firm executives and others warned REICHMAN on several occasions that using Providence P&C’s assets as collateral for the loan was illegal and that he should not cause the loan to be issued.
At his guilty plea, REICHMAN admitted that he attended a meeting where he was advised by Providence P&C’s general counsel that “under Oklahoma regulations Providence’s assets could not be pledged to secure a loan.” Reichman “never passed on to [the Investment Firm] what Providence’s lawyers had said at the meeting.” Instead, he provided misleading information to various individuals at the Investment Firm and elsewhere regarding the loan, including directing Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan. Despite the warnings from Investment Firm executives and others, and REICHMAN’s knowledge that the loan was in fact illegal, on January 30, 2009, REICHMAN caused the Investment Firm to issue the illegal $30 million loan, which was secured by the very assets that were supposed to be unencumbered and maintained in reserve to pay Providence P&C’s policyholder claims.
After deceiving the Investment Firm into issuing the $30 million loan, REICHMAN received at least $200,000 in commissions from the Investment Firm as a result of the illegal loan. Ultimately, in November 2009, encumbered by the $30 million loan, the insurance company became insolvent and was placed in receivership. The Investment Firm incurred losses totalling $10 million as a result of the insurance company’s insolvency. The amount of restitution ordered today as part of the sentencing is based on the $10 million loss.
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In addition to prison, REICHMAN, 54, of Irvington, New York, was sentenced to two years of supervised release, and ordered to forfeit $200,000 to the United States and to pay $10 million in restitution to the Investment Firm, his former employer.
Wilbur Anthony Huff, who pled guilty to his role in the above-described offense and other interrelated frauds in December 2014, was sentenced by Judge Buchwald on June 4, 2015, to 12 years in prison. Charles Antonucci and Matthew Morris pled guilty for their roles in the criminal conduct on October 8, 2010, and October 17, 2013, respectively. They are scheduled to be sentenced before Judge Buchwald on August 19, 2015, and August 20, 2015, respectively.
Mr. Bharara praised the investigative work of the Special Inspector General for the Troubled Asset Relief Program, the Federal Bureau of Investigation, the New York State Department of Financial Services, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Office of Inspector General of the FDIC.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Janis Echenberg and Daniel Tehrani and Special Assistant U.S. Attorney Tino Lisella are in charge of the criminal case.