A former director of risk management at Brightpoint Inc. has been ordered by a federal judge in New York to pay $50,000 in civil penalties in connection with the fraudulent use of finite reinsurance, the Securities and Exchange Commission announced.
U.S. District Court Judge Harold Baer Jr. in Manhattan on Monday ordered Timothy Harcharik to pay the fine for his role in the finite risk deal struck in 1998 between Brightpoint Inc., a Plainfield, Ind.-based mobile telephone distributor, and insurer American International Group, the SEC said.
The final judgment against Mr. Harcharik followed a four-day trial in May that found him liable for aiding and abetting the fraud scheme. Two other Brightpoint officials charged in the case previously settled with the SEC.
The Brightpoint case represented the first finite risk related charges brought by the SEC to go to trial.
According to the Pittsburgh, Pa.-based National Union Fire Insurance Co., a subsidiary of AIG provided Brightpoint with an insurance contract that did not involve any risk transfer.
Under the contract, Brightpoint was allowed to claim an insurance receivable in its financial statement, which led to an overstatement of earnings, the SEC charged.
The complaint further alleged the purported policy was simply a vehicle that masked a round trip of cash between Brightpoint and AIG, rather than real insurance, the SEC said.
“As a result of the scheme, Brightpoint's pre-tax net income for 1998 was overstated by 61 percent,” the SEC said in a statement.
In 2003, AIG paid $10 million to settle charges from the SEC over its 1998 finite transaction with Brightpoint.
AIG did not admit any wrongdoing as part of the settlement.
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