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Ex-insurance exec awaits fraud sentence.

EX-INSURANCE EXECUTIVE Frank B. Whitbeck avoided a criminal trial scheduled for May 27 in a plea bargain agreement with federal prosecutors.

In exchange for admitting to one count of mail fraud--his plea in U.S. District Court was scheduled for last Thursday, after this issue went to press--Whitbeck won't have to contend with three counts of making false statements to the Arkansas Insurance Department.

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"The sentencing issues will be dealt with at a later date," said Assistant U.S. Attorney George Vena, who prosecuted Whitbeck. The statutory limit for the mail fraud charge is 20 years in prison and a $1 million fine.

Whitbeck's trial had been scheduled four times since a federal grand jury last year handed down a four-count fraud indictment against Whitbeck. The charges are related to financial dealings between Signature Life Insurance Co. of America and Winrock Grass Farm Inc., both owned by Whitbeck.

Whitbeck was accused of diverting more than 80 percent of Signature Life's assets to himself and other companies he controlled. The charges are linked with Signature Life's annual statements for 2001, 2002 and 2003 filed with the state Insurance Department.

According to allegations, Whitbeck falsely described loans to his Winrock Grass Farm as residential mortgages, falsely described the loans as first liens and falsely described Winrock as an unrelated third-party borrower.

Insurance regulators said Whitbeck should have categorized the loans to Winrock Grass Farm as commercial mortgages. Other lenders already had first liens on the property, and the Signature loans to the grass farm were never filed of public record, which made the debt unsecured.

Whitbeck shed little light on his motives during a deposition with Steve Niswanger, attorney for the Insurance Department.

Niswanger: "And none of these mortgages were actually recorded in the real estate records?"

Whitbeck: "No."

Niswanger: "Why not?"

Whitbeck: "It was my belief that these mortgages would not be in existence a very long time."

Niswanger: "And why is that a reason for not filing a mortgage?"

Whitbeck: "That's just what occurred."

Whitbeck pleaded not guilty to the charges at his arraignment on Jan. 22, 2007. Neither he nor his lawyer, Jeff Rosenzweig, could be reached for comment on the case.

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Meanwhile, Signature Life is in its 17th month of financial rehabilitation under the guardianship of state insurance regulators, and Winrock Grass Farm has gone to bankruptcy court in an unsuccessful effort to stave off creditors.

Whitbeck battles on in an appeal of a counterclaim against Metropolitan National Bank, which forced the sale of Winrock's 814-acre spread about 11 miles west on Highway 10 from Little Rock's Chenal Parkway.

Last year, he also opened a second front in that dispute with a federal fraud suit against Tom Ferstl's Affiliated Real Estate Appraiser of Arkansas Inc. of Little Rock in connection with the court-ordered sale of the Winrock property.

Whitbeck lists the lawsuit as a $10 million fixed asset on Winrock Grass Farm's financial statements. The number reflects the damages sought in the case.

Without the entry, the company's fixed assets totaled $1.6 million as of Jan. 31.

From August 2007 to January 2008, Winrock Grass Farm recorded total sales of $289,000 and a loss of $33,413.

Though the company's land was sold in a $4.5 million foreclosure sale in July 2005, Whitbeck continues operating the grass farm. Keeping the business active provides security for the property, according to Jay DeHaven.

The arrangement was made with DeHaven, who led the effort to acquire the land and hopes to redevelop it into an estate-style residential project called Canterbury Park.

The would-be development is embroiled in a land-use battle with Central Arkansas Water, which wants to control development in the Lake Maumelle watershed. The Big Maumelle River, the main tributary to the largest source of drinking water in central Arkansas, winds through the Winrock Grass Farm acreage.

Insurance Action

The Arkansas Insurance Department dropped a civil lawsuit against Whitbeck alleging fraud, breach of fiduciary duties and conversion in exchange for his signing a plan to financially rehabilitate Signature Life.

"It's a matter of him performing under the rehab plan, and us taking care of the [Signature Life] policy owners," said Steve Uhrynowycz, deputy receiver for the Arkansas Insurance Department.

"If he does everything he's supposed to, the company will be sold out of receivership. If not, the commissioner will put the company into liquidation."

Under terms of the settlement, Whitbeck agreed to repay whatever amount is necessary to make Signature Life solvent, a number estimated at $3.9 million.

Whitbeck has personally guaranteed $2 million, and his FBW LLC is on the hook for the balance.

The money is replenishing Signature's depleted reserves after Whitbeck caused the insurance firm to make unsecured loans he claims are related to Winrock Farms.

The unpaid debt owed the insurance company totals $4.5 million by the reckoning of regulators.

In the event Whitbeck doesn't make good on the payments, guaranty funds will be activated to protect policyholders, and the Insurance Department could sue to enforce the terms of the settlement.

Whitbeck's financial rehabilitation of the company could culminate in a final balloon payment of about $3 million on Dec. 31, 2009. A financial actuary will be hired to determine the exact final balloon payment.

Liquidation Timeline

As the financial troubles of Winrock Grass Farm mounted, Frank Whitbeck and his family have liquidated real estate holdings to raise cash and pay off debt. During the past five years, eight Pulaski County transactions registered as sales valued at more than $4.7 million. A ninth property was acquired and remains under Whitbeck ownership.

March 20, 2003

Sold rental property and undeveloped land at the southeast corner of Cantrell Road and North Street in downtown Little Rock for $825,000. Seller: FBW LLC, led by Frank B. Whitbeck. Buyer: 361 LLC, representing boosters of the neighboring Episcopal Collegiate School.

July 31, 2003

Sold a 1.5-acre commercial site at the southeast corner of Chenal Parkway and Kanis Road in west Little Rock for $925,000. Seller: FBW LLC. Buyer: Stephen L. LaFrance Pharmacy Inc.

Sept. 30, 2003

Sold a half-acre parking lot at the southeast corner of Chester and Third streets in downtown Little Rock for a reported $158,000. Seller: Whitbeck's mother, Beverly Whitbeck. Buyer: Markla Realty & Development Co., led by Morin M. Scott Jr.

April 8, 2004

Sold a 0.2-acre KFC project at 8220 Geyer Springs Road in southwest Little Rock for $550,000. Seller: Beverly Whitbeck. Buyer: Reheel Realty Inc. of Los Angeles.

Feb. 17, 2005

Sold the 3,600-SF Signature Life Insurance Building at 905 LaHarpe Blvd. in downtown Little Rock for $415,000. Seller: FBW LLC. Buyers: Jeffrey and Betty Graham.

July 12, 2006

Sold the 3,840-SF Canon Grill property at 2811 Kavanaugh Blvd. in the Hillcrest area of Little Rock for $600,000. Seller: Beverly B Whitbeck Revocable Trust, led by Frank Whitbeck. Buyer: BSMD Holdings LLC, led by James Bryant and Brett Smith.

Dec. 4, 2006

Butterfield Investments Inc., led by Frank Whitbeck, bought a 72.3-acre industrial/ agri tract in east Little Rock on Zeuber Road for $500,000. The seller, Nabholz Properties Inc., led by Charles Nabholz, financed $452,135 of the sale price.

April 10, 2007

Sold the 7,300-SF 2801-2805 Kavanaugh Blvd. project in the Hillcrest area of Little Rock for $1.05 million. Sellers: Elizabeth Butterfield Whitbeck Trust, the Frank L. Whitbeck Share 2 Trust and the Selby Rowland Whitbeck Trust. Buyer: BSMD Holdings LLC.

Feb. 27, 2008

Transferred ownership of a 0.34-acre commercial project at 25811 Highway 10 in west Pulaski County, valued at $217,000. The Arkansas Insurance Department, as receiver for Whitbeck's Signature Life Insurance Co. of America, accepted the property in lieu of a cash payment as part of a settlement to replenish the insolvent firm's reserves. Whitbeck acquired the property 11 months ago from Billie and Wayne Ratcliff for $111,000.

By George Waldon

george@abpg.com
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Author:Waldon, George
Publication:Arkansas Business
Date:May 12, 2008
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