Former insurance agent Standridge facing FBI investigation: accused of 72 violations, Mount Ida man gives up license before hearing.
The interest of federal law enforcement agents is the latest revelation in the sudden downfall of a businessman who was the Professional Insurance Agents' National Professional Agent of the Year just four years ago.
Standridge ran one of the largest insurance agencies in Arkansas with 20 offices and 178 employees as of January 2009. He also owned Gibraltar National Insurance Co. of Little Rock, a small workers' compensation insurance carrier.
Since the beginning of 2010, however, Standridge and his businesses have faced a number of difficulties and transitions:
* The AID issued an emergency order suspending his license, alleging he misrepresented $4 million worth of collateral for Gibraltar, which Standridge bought from businessman Ed Harvey in January 2009. The company, taken into receivership, is in the processes of being liquidated as Triangle Insurance Co. of Enid, Okla., operates it.
* The AID had scheduled a hearing for Thursday to decide whether Standridge's producer license should be permanently revoked. He was facing 72 counts of wrongdoing, including "demonstrating incompetence, but more likely used dishonest practices and demonstrated untrustworthiness and financial irresponsibility," according to petition for the hearing that the AID staff filed in June.
But late last week, Standridge signed a consent revocation order, which permanently revoked his insurance license, ending the need for the hearing.
* Standridge, 53, agreed to "retire immediately" in March from the insurance industry, leaving Steve Standridge Insurance Inc., which he founded in 1982, in the hands of his two children, Alisha Pollock, 30, who is president, and Jared Standridge, 28, vice president.
* The AID placed Standridge Insurance under regulatory supervision in March.
* Two Standridge Insurance agencies offices have been sold. And more office sales could be coming.
Standridge didn't return calls left on his cell phone last week. His attorneys, Sam Perroni of Little Rock and Tim Dudley of Little Rock, also couldn't be reached for comment.
Standridge's son, Jared Standridge, said, "The issues that my dad is going through right now are personal issues. And his personal issues are not going to affect the agency.
"This has been a challenge, but we're going forward," he said. The agency is "going to continue to service our customers like we have in the past."
Amanda Rose, the AID's associate counsel for the legal division, said last week that the investigation into Steve Standridge was continuing.
"We don't have any evidence that [Standridge's children] or anybody else was involved, but it's ... our duty to make sure of that," she said.
Rose said that FBI agents in Pine Bluff and Hot Springs along with a FBI forensic accounting agent were investigating Standridge. An FBI spokesman said he couldn't confirm or deny that the agency was conducting an investigation.
Steve Standridge's wave of problems--including the disclosure of the premium finance loan troubles--can be traced to his January 2009 purchase of the troubled Gibraltar.
To insurance industry watchers, the acquisition seemed odd even for Standridge, who had been gobbling up independent insurance agencies during the past decade. Gibraltar "was on the verge of receivership," Rose, the AID's associate counsel, said last week.
Ed Harvey, the owner of the company, "had some questionable business transactions," Rose said. "He had reported several items, like his skybox in Fayetteville at the football stadium, as assets of the company, and, of course, those are not admitted. Once all that was discovered, the company was technically insolvent. ... The acquisition by Standridge was done so quickly to avoid having to put the company in receivership."
Harvey, who is the father-in-law of U.S. Sen. Mark Pryor, D-Ark., couldn't be reached for comment. But attorney Dick Home of Little Rock, who represented Harvey in the transaction, disputed Rose's assessment of Gibraltar at the time of the sale.
"It was very much solvent," Horne said. "Ed Harvey, in case you don't know, has got all kinds of money."
Horne said that Harvey was past retirement age and wanted to sell off his businesses, including the trucking company Continental Express Inc. of Little Rock, which sold in December 2008 for $24 million to the Celadon Group Inc. of Indianapolis.
Before Standridge could buy Gibraltar, though, the AID needed to approve the deal. A hearing was held on Jan. 14, 2009.
Jay Morgan, the deputy commissioner and general counsel for the AID, introduced Standridge at the hearing as "a well-known and a well-respected member of the insurance community here in Arkansas for a number of years," according to a transcript of the proceeding.
Standridge then testified that his agency had done business with Gibraltar since the middle of 2006. Standridge estimated that his agency wrote $1.2 million in annual premium with Gibraltar.
"We have a lot of confidence in their people, and they have a lot of confidence in us," Standridge said. "And I'm sure their relationship lended [sic] itself to when the opportunity arose, that they contacted us about a possible acquisition.
Standridge's Suspect Premium Finance Loans Loan Date Policyholder Lender Amount of Amount Owed * Loan 04/09/2009 Wood Lumber Bank of $349,582 $349,582 Go. Inc., Delight Camden 05/15/2009 J&D Lumber Chambers $921,333 $724,397 Inc., Bank, location Danville unknown 05/15/2009 Wood Lumber Chambers $252,111 $198,147 Co. Inc., Bank, Camden Danville 06/11/2009 Quest Premium $1,917,793 $0 Construction Financing Co., Specialists Russellville Inc., Kansas City, Mo. 06/16/2009 Wood Lumber Bank of Star $499,288 $0 Co. Inc., City Camden 08/05/2009 Wood Lumber Chambers $3,579,452 $3,289,207 Co. Inc., Bank, Camden Danville 08/19/2009 Quest Chambers $1,988,776 $1,748,320 Construction Bank, Co., Danville Russellville 11/23/2009 Grant Garrett Premium $414,747 $365,756 Excavating, Financing Hot Springs Specialists Inc., Kansas City, Mo. 12/07/2009 CMT LLC Select Declined Premium, El Campo, Texas 12/17/2009 Grant Garrett Select $405,941 $40,000 Excavating, Premium, El Hot Springs Campo, Texas 01/21/2010 Spa Lodging Select $48,783 $43,624 ** Inc., Hot Premium, El Springs Campo, Texas 02/02/2010 Wood Lumber Premium $326,739 $188,128 [dagger] Co. Inc., Advance Camden Corp, Illinois Totals $10,704,545 $6,947,161 Source: Arkansas Insurance Department * As of April 2010 ** Original loan amount less $5,159 in payments made by Spa Lodging Inc. in February-May 2010 [dagger] Original loan amount less $138,611 in payments
"Our family was interested in it because we think the company is one of the best to do business with," he said.
He also said that the purchase of Gibraltar made sense because "it's a wonderful opportunity for my family to have increased assets and increased wealth." Standridge said he would keep the staff in place to run the company.
He also proposed an unusual way of paying for the business: It was a convoluted transaction that called for Standridge to borrow $4 million against the assets of Steve Standridge Insurance, with $2 million going to Harvey and $2 million being used to pump up Gibraltar's inadequate capital.
In 2007, the most recent financial data available to Arkansas Business, Gibraltar reported $2.2 million in total premium, $2.6 million in capital and surplus and a net income of $424,000.
The AID approved the transaction in January 2009. But Rose recently told Arkansas Business that the transaction was odd because few buyers want an insolvent insurance company. And when an insurance company is bought, "it's typically a cash exchange."
Gibraltar's receiver, Steve A. Uhrynowycz, has alleged that Standridge actually conspired with First Service Bank of Greenbrier to mislead the AID, according to a lawsuit he filed last month against Standridge and First Service.
Standridge "was unable or unwilling" to come up with the cash required to recapitalize Gibraltar, so the bank and Standridge "concocted a scheme" in which the bank would lend $4 million to Standridge and his wife, the lawsuit said. Standridge then would turn around and buy certificates of deposits from First Service in the name of Gibraltar, "which would then be secretly pledged as collateral for the loan to Standridge," the lawsuit said. "Standridge's family would then own Gibraltar, and the Bank would thereafter earn interest on its low-risk loan."
Once the CDs were in its name, Gibraltar wouldn't be considered insolvent by the AID and the insurance company could continue operating.
"The Bank knowingly participated in this fraud," the lawsuit said. The bank's president and CEO, Thomas Grumbles, hasn't returned calls for comment since the suit was filed.
The sale closed and Harvey received $2 million for the company he formed in 1988.
In 2009, Gibraltar wrote policies and continued business as usual. The company had about $3.2 million in direct written premium that year, Audra Welcher, who was the president of Gibraltar before and after Standridge bought it, wrote in an e-mail to Arkansas Business. Welcher declined to comment further.
In 2009, although technically insolvent, Gibraltar was able to get by on its cash flow, according to the receiver, Uhrynowycz.
Insurance regulators didn't know the true financial picture of Gibraltar. As late as Jan. 29 of this year--barely a month before the AID issued its March 3 emergency order suspending Standridge's insurance license--First Service Bank sent confirmation to Gibraltar's auditor indicating that the CDs were unencumbered, the lawsuit said.
Uhrynowycz is seeking at least $4 million in damages from Standridge and First Service.
House of Cards
The CDs matured in early February, and Standridge needed Welcher, as president of Gibraltar, to sign new documentation involving the CDs, Rose said.
Standridge "told her to sign it, don't worry about reading it," Rose said. "Well, she decided to read it, of course, and realized what had been going on."
Welcher wanted to call Gibraltar's attorney for advice, but Standridge prevented her, Rose said.
Standridge told Welcher not to worry "and pretty much coerced her into signing the document," Rose said. "But then she immediately, on Feb. 12, came to the [AID] and said, 'I think he pledged all of Gibraltar's assets for a personal loan,' which makes them nonadmitted for purposes of their solvency."
Welcher is the daughter of Lenita Blasingame, the AID's chief deputy commissioner.
Welcher "was very concerned," Rose said. "And that's when ... the house of cards just started tumbling."
The AID discovered that Standridge, or someone acting on his behalf, had forged the signatures of three of Standridge Insurance's board members, including his son, Jared Standridge, when he pledged the agency's assets as collateral on the loan used to buy Gibraltar.
Uhrynowycz said last week that it would take $1.735 million to make Gibraltar solvent.
Premium Finance Loans
Rose said questions about the way Standridge handled premium finance loans surfaced shortly after the problems with Gibraltar's capital, starting with a complaint by the Bank of Star City received on Feb. 24.
Commercial insurance premium is usually paid annually and in a lump sum, but some companies can't come up with the money for the policy all at once, so they take out a premium finance loan. The bank or lender has the policy as collateral.
But Rose said Standridge sometimes used policies that never existed to get the loans from a bank or lender specializing in premium finance. Or he used real policies just long enough to get loans.
With the premium loan money in hand, Rose said, Standridge then would tell the carrier that he wasn't able to get the funding, so he would have to cancel the policy. Instead of returning the money to the lender, Standridge kept it, she said.
"For the most part, these banks were really new at this," Rose said. They "didn't really understand how it worked and instead of paying the insurance company directly, they would give the funds to Steve. And so when he cancelled the policy, he's holding the money."
In one case, however, the lender made the check out to the insurance carrier, but Standridge endorsed it and deposited it into his business account, the AID said. The amount the AID has estimated Standridge generated from the practice is $10 million.
"It doesn't look good for the banks and the lenders" to get their money back, Rose said. "The only [Arkansas bank] I know that's been paid in full is the Bank of Star City, and that's because they've sued."
The Bank of Star City sued Standridge on Feb. 26 to collect the $430,000 on a premium finance loan for Wood Lumber Co. of Camden. Standridge canceled the policy in 2009 but then failed to return the unearned premium, according to the bank's lawsuit filed in Lincoln County Circuit Court.
The bank dismissed its lawsuit after it was paid within weeks of the case being filed, said the bank's attorney, Hani Hashem of Monticello.
Chambers Bank in Danville made $6.7 million worth of supposed premium finance loans to Standridge in May and August of 2009, according to the AID petition. As of April, $5.9 million was still unpaid, the AID said.
The owner of Chambers Bank, John Ed Chamber III, told Arkansas Business that he had done business with Standridge for "several years" but has declined to comment further.
Rose said she had no clue where the money went. Standridge Insurance has about $20 million worth of debts, approximately $10 million tied to the premium finance loans and $10 million in "legitimate company debt," she said.
Jared Standridge said the allegations against his father hadn't hurt the agency.
"Customers buy their insurance from the agents," he said. "They don't buy their insurance from the company ... and we have loyal customers and loyal employees."
Still, parts of Standridge Insurance are being sold off, Jared Standridge said. Since March, it has sold its agency in Benton to Andy Herzfeld, who was already running the office as Herzfeld Insurance Agency Inc., and its Star City office to Kevin White, who is operating it as Green & White Insurance. The sales prices were not disclosed.
In Russellville, agents Greg Standridge, no relationship to Steve Standridge, and Mark Coffman paid Steve Standridge Insurance for the right to take their customers and start their own agency. Greg Standridge said he won't use his name in the agency's name because of the allegations surrounding Steve Standridge, so the company opened last week as CSI Insurance.
Standridge Insurance is now down to 15 agencies across Arkansas and about 100 agents.
Jared Standridge said "interested parties" were looking to buy Standridge Insurance's Conway office, but nothing is pending.
"Me and my sister are going to keep some offices and just get this thing to where it's a little more manageable for me and her [to] go back to selling insurance," Jared Standridge said. He said he didn't know how many offices he was planning on keeping.
"We're looking at all options," he said.
By Mark Friedman
RELEATED ARTICLE: Insurance Department Warned Standridge in January
AN ATTEMPT TO STEAL BUSIness from another insurance agency resulted in cease-and-desist orders against two Arkansas insurance agents early this year, but the third player in the plot, Mount Ida agency owner Steve Standridge, got off with a warning, state Insurance Commissioner Jay Bradford and his associate counsel, Amanda Rose, acknowledged last week.
"No question, it was a bad situation," Rose said. "Steve was very proactive in seeking out those agents and those clients basically without paying for them," she said.
The case stemmed from the sale of Insurance Marketplace, an agency owned by ANB Financial, the Bentonville bank that failed in May 2008.
The Federal Deposit Insurance Corp., as receiver appointed to liquidate ANB's assets, solicited bids for the sale of the insurance agency, according to a lawsuit filed in Benton County Circuit Court in June 2008. The lawsuit was filed by ANB Financial Services LLC and GL Holdings LLC of Fayetteville, which won the bid, against Standridge and two former employees of Insurance Marketplace, Sidney J. Phillippy and Tina Dickey, both of Rogers.
The lawsuit alleged that Standridge made a deal with Phillippy as he and Dickey were preparing the bid packages. They agreed, the lawsuit alleges, that if Standridge won the bid, Phillippy and Dickey would run Insurance Marketplace or another of Standridge's agencies, according to the lawsuit.
At the time, Standridge operated Steve Standridge Insurance Inc. of Mount Ida, one of the largest insurance agencies in Arkansas.
If Standridge didn't win the bid, Phillippy and Dickey still would work for Standridge "and take additional Insurance Marketplace employees and 'pirate' Insurance Marketplace's insurance customer accounts for Mr. Standridge," or so Fayetteville attorney Derrick Davidson alleges in the complaint.
On May 30, 2008, the FDIC announced the winning bidder was GL Holdings, and the sale was closed on June 20, 2008.
Phillippy and Dickey then went to work for Standridge's agency, Renner & Co. in Fayetteville, and began "pirating" Insurance Marketplace's customers and accounts, the lawsuit said. The accounts have been valued at nearly $1 million.
Standridge settled with the plaintiffs and was dismissed from the lawsuit in October 2008. The lawsuit is pending against Phillippy and Dickey for breach of contract and theft of trade secrets.
Their attorney, Kenneth Shemin of Rogers, couldn't be reached for comment. Standridge didn't return calls.
The AID didn't learn of the allegations until October 2009, a year after Standridge settled his part of the case, said the AID's Rose.
At the time, Standridge still "had a good reputation and was well-known in the insurance world," Rose said.
He had been named the Professional Insurance Agents' National Professional Agent of the Year in 2006. And in August 2009, Insurance Journal ranked Standridge Insurance at No. 55 of the top 100 privately held property and casualty agencies in the country ranked by premium written in 2008--$216.46 million.
Rose said last week that she discussed the case with Bradford before taking any action against Standridge, and Bradford told her he would handle it.
Bradford issued cease-and-desist orders against Phillippy and Dickey on Oct. 30, preventing them from taking Insurance Marketplace's customers. On March 10, they both agreed to consent orders placing them on probation with the department for two years.
No official action was taken against Standridge. Instead, he was given a talking-to.
On Jan. 11, Bradford "dressed [Standridge] down and told him that he never wanted to hear his name in association with a complaint or anything like that ever again," Rose said.
Bradford said that Standridge's name had been "mentioned on the fringe of that issue." And the commissioner said he warned Standridge "that if I ever heard his name again associated with a regulatory issue ... [there] was going to be hell to pay ... and it has."
Only about a month later, Standridge was in hot water with the agency on allegations that he falsified the collateral he used when the bought Gibraltar National Insurance Co. of Little Rock in January 2009 and for fraudulent premium-finance loans.
Standridge's insurance license was suspended in March and he agreed late last week to have it permanently revoked.
"I followed through exactly what I said," Bradford said. "And, quite frankly, it made my job very simple when the explosion occurred having forewarned him."
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|Title Annotation:||NONPROFITS CORPORATE GIVING|
|Date:||Jul 5, 2010|
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