NU Online News Service, May 26, 4:01 p.m.EDT

The president of a defunct New York title insurance company wasarrested today on charges he misappropriated up to $5 million inclient and escrow monies, federal and state authoritiesannounced.

Charged with insurance fraud and wire fraud was Brian H. Madden,55, of Greenlawn, N.Y., who was president of Liberty Title Agencyand also operated Skyline Title and GNY Liberty Abstract.

According to a sealed complaint that was issued last week beforehis arrest, Mr. Madden ran his operation "much like a 'Ponzi'scheme, in which new investors' funds are used to pay off oldinvestors…"

"Madden's scheme essentially relied on new funds from clients topay off debts owed on behalf of other clients, or to sustainLiberty Title's operations despite Madden's significant draws fromthe Liberty Title," according to FBI Special Agent Aimee M.Funasaki.

Liberty closed down last month after several contracts withunderwriters were terminated when accounting and financialirregularities were discovered at the firm, Agent Funasakinoted.

Since 2006, Mr. Madden "unilaterally took cash draws approaching$1.5 million a year or more, and since January 2008 alone he took"cash draws of approximately $2.2 million from Liberty Title,"Agent Funasaki said in a deposition.

The agent mentioned that prior to the arrest, she had obtainedMr. Madden's bookkeeping records, bank account records and e-mails,interviewed witnesses, and found he had transferred money fromLiberty Title into his account and accounts belonging to his wifeand daughter.

Mr. Madden's arrest was announced by Lev L. Dassin, acting U.S.Attorney for the Southern District of New York in Manhattan; JosephM Demarest Jr., assistant director in charge of the FBI New YorkField Office; and New York Insurance Superintendent EricDinallo.

According to Mr. Dassin's statement, Mr. Madden last year wasmaking cash draws of $300,000 or more a month despite thedeteriorating real estate market throughout 2008.

As an example of Mr. Madden's stealing-from-Peter-to-pay-Pauloperation, it was mentioned that he received funds from a majorunnamed New York City developer to pay $2.1 million in mortgagereal estate taxes for the transaction and to record thetransaction.

After bouncing one check, "Liberty Title used escrow fundsmisappropriated from another of its clients, as well as escrowfunds entrusted to GNY Liberty Abstract, to pay a portion of thetax due on the transaction," said Mr. Dassin's announcement.

It was also discovered that Liberty Title had allegedly failedto record in a timely manner more than 35 real estate transactionsdespite being paid for them.

On the wire fraud charge, Mr. Madden faces up to 20 years inprison, a $1 million maximum fine or twice the gain or loss fromhis scheme, and up to 10 years for insurance fraud and a $250,000fine or twice the pecuniary gain or loss.

After appearing before U.S. Magistrate Frank Maas Mr. Madden wasreleased on his own recognizance.