An ongoing federal investigation in North Carolina has revealedthat a small reinsurance broker and confederates scammed twoself-insurance groups and a captive insurer out of $39 million inworkers' compensation premiums, according to governmentofficials.

The broker--Thomas Gerard Reitz, 47,of Alpharetta, Ga.--twoweeks ago pleaded guilty in U.S. District Court in Charlotte, N.C.,to mail fraud and money-laundering charges that carry a maximumterm of more than 20 years.

According to the FBI, the investigation is continuing.

Mr. Reitz' plea agreement calls for him to testify "against anyco-defendants" who prosecutors bring charges against. In theinterim Mr. Reitz awaits sentence that may not happen for fourmonths "or more," according to Suellen Pierce, a representative forthe Charlotte U.S. Attorney's office.

According to the plea document and a federal bill of informationfiled against Mr. Reitz, the broker and other conspirators--whoincluded a third-party administrator for workers' comp insurancefunds, and an executive of a wireless data solutions firm--operatedtheir scheme from 2003 to about October 2006.

The victimized companies, according to the bill of information,were two workers' comp self-insured employer groups based in NorthCarolina--Phoenix Fund and the North Carolina Chamber of CommerceSelf-Insurers Fund.

Mr. Reitz, who operated Reitz Group, along with confederatesmanufactured phony reinsurance contracts for those two companies"and others," the documents stated. It was learned that one of theothers was the NLC Mutual Insurance Company, a Vermont captivebased in Washington, D.C., which is owned by 26 state pools.

Bill Heberton, president and chief executive officer of NLC-MIC,confirmed his company was involved in the case. He said he believedhis firm was actually the only other insurance concern hit by Mr.Reitz's activity.

As a result of being notified by the FBI, his firm has reviewedits base of claims. "We haven't found anything that could damageus," said Mr. Heberton.

From speaking with the FBI, Mr. Heberton said he believed theauthorities might make a substantial recovery. In his pleaagreement, Mr. Reitz has agreed to make restitution.

NLC-MIC originally dealt with Mr. Reitz as part of a largebrokerage, and because of the past relationship, was given ameasure of trust when he approached the firm a few years lateroffering to place their coverage.

Through the brokerage he had created in his name, Mr. Reitz madelegitimate placements for NLC-MIC for a number of years, and thenafter a one-year hiatus, the fraud began, Mr. Hebertonexplained.

He said that when the company learned of Mr. Reitz's activity inwhat he called "a very high-level program," they had contacted theVermont Insurance Department, which notified the NationalAssociation of Insurance Commissioners.

According to a source, the Vermont Insurance Department's annualaudit failed to pick up Mr. Reitz' activity because their check ofreinsurance coverage involved sending a letter to Mr. Reitz.

Mr. Heberton confirmed that the state audit failed to findanything, but pointed out that two private firms during annualaudits also failed to reveal a problem. Vermont's insurancedepartment had no comment on whether the case would result in anychange in their operational procedures.

According to an affidavit from FBI Special Agent Daniel Lucero,the Reitz fraud was uncovered by Ronald L. Sauer, a North CarolinaInsurance Department fraud examiner who could find no reinsurancecontracts when he audited Phoenix

Jeff Trendell, North Carolina's deputy insurance commissioner,then checked with Hannover Ruckversicherung AG in New York, whereMr. Reitz claimed to have placed the risk, and learned the companyhad never dealt with the broker or insured Phoenix.

Mr. Trendell said the Phoenix Fund has been taken over by thestate and is under rehabilitation by his department. The companywas stung for $24.3 million in premiums, according to the FBI.

A North Carolina insurance department representative, ChrissyPearson, said Mr. Reitz' broker's license has not been renewed. AnFBI representative in Charlotte, while confirming the case iscontinuing, would say nothing more.

Court papers named Mr. Reitz' two unindicted coconspirators as"Mr. H" and "Mr. W."

The information describes Mr. H is as part owner and presidentof National Benefits Group. Ken Harrison is listed as NBGpresident.

NBG is the holding company for third-partyadministrator--National Benefits of America, Inc.--which worked forPhoenix Fund and the Chamber self-insureds. Mr. Reitz "and others"paid kickbacks to Mr. H, representing a percentage of the moneycollected in premiums for the non-existent reinsurance, courtdocuments state.

According to the information, Mr. W, the unnamed wireless firmexecutive, ran the Solomon Alliance Group in Alpharetta, Ga., whichserved as a contractor for INTAC, another firm Mr. Reitzoperated

Mr. W. it was alleged channeled money into INTAC's bank accountafter getting payments from Mr. Reitz. A 2001 SEC filing forSolomon lists Thomas I. Weston as president. A phone listing forSolomon was not in service.

Mr. Reitz' attorney Wilmer "Buddy" Parker in Atlanta said hisclient is cooperating with the continuing investigation, but wouldmake no further comment.

This article was updated Feb. 12, 12:20 p.m. EST.