Feds Bust $39M Comp Reinsurance Scam

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, 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.

The FBI said the investigation is ongoing, and Mr. Reitz' plea agreement calls for him to testify "against any co-defendants" charged by prosecutors. The probe may go on four months "or more," noted 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--including 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 documents, 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 National League of Cities 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' 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," he said.

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 that past relationship, he was given a measure of trust when he approached the captive 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' 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' fraud because they checked on the captive's reinsurance coverage by 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. The Vermont Insurance Department had no comment on whether the case would result in any change in their operational procedures.

Jeff Trendell, North Carolina's deputy insurance commissioner--whose agency uncovered Mr. Reitz' activity during a normal audit--said they had gone "beyond the intermediary" to check on reinsurance. He said the Phoenix Fund has been taken over by the state and is under rehabilitation by his department.

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.