An ongoing federal investigation in North Carolina has revealed that a small reinsurance broker and confederates scammed two self-insurance groups and a captive insurer out of $39 million in workers' compensation premiums, according to government officials.

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

According to the FBI, the investigation is continuing.

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

According to the plea document and a federal bill of information filed against Mr. Reitz, the broker and other conspirators--who included a third-party administrator for workers' comp insurance funds, and an executive of a wireless data solutions firm--operated their 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 North Carolina--Phoenix Fund and the North Carolina Chamber of Commerce Self-Insurers Fund.

Mr. Reitz, who operated Reitz Group, along with confederates manufactured phony reinsurance contracts for those two companies "and others," the documents stated. It was learned that one of the others was the NLC Mutual Insurance Company, a Vermont captive based 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 believed his 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 reviewed its base of claims. "We haven't found anything that could damage us," said Mr. Heberton.

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

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

Through the brokerage he had created in his name, Mr. Reitz made legitimate placements for NLC-MIC for a number of years, and then after a one-year hiatus, the fraud began, Mr. Heberton explained.

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

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

Mr. Heberton confirmed that the state audit failed to find anything, but pointed out that two private firms during annual audits also failed to reveal a problem. Vermont's insurance department had no comment on whether the case would result in any change 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 Carolina Insurance Department fraud examiner who could find no reinsurance contracts when he audited Phoenix

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

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

A North Carolina insurance department representative, Chrissy Pearson, said Mr. Reitz' broker's license has not been renewed. An FBI representative in Charlotte, while confirming the case is continuing, 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 president of National Benefits Group. Ken Harrison is listed as NBG president.

NBG is the holding company for third-party administrator--National Benefits of America, Inc.--which worked for Phoenix Fund and the Chamber self-insureds. Mr. Reitz "and others" paid kickbacks to Mr. H, representing a percentage of the money collected in premiums for the non-existent reinsurance, court documents state.

According to the information, Mr. W, the unnamed wireless firm executive, ran the Solomon Alliance Group in Alpharetta, Ga., which served as a contractor for INTAC, another firm Mr. Reitz operated

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

Mr. Reitz' attorney Wilmer "Buddy" Parker in Atlanta said his client is cooperating with the continuing investigation, but would make no further comment.

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

Special Reports /

Reinsurance Broker Busted For $39 Million Scam

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