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Probe Looks at Lloyd's-Quackenbush Link

Insurance: A New York-based federal inquiry into the British firm subpoenas California records of its dealings with the former commissioner.

March 14, 2001|VIRGINIA ELLIS | TIMES STAFF WRITER

SACRAMENTO — A New York federal task force investigating Lloyd's of London has broadened its probe to California, where it has subpoenaed records and conducted interviews on the insurance giant's relationship with former regulator Chuck Quackenbush.

The focus of the California probe is a $400,000 payment that Lloyd's made to the state after the former state insurance commissioner took the British insurer's side in a fraud suit.

A federal grand jury subpoena ordered the department to produce all its records relating to the transaction, including documents showing that Quackenbush's staff produced a phony invoice to hide the payment by characterizing it as a bill for "educational briefings."

State officials, who asked not to be identified, said federal investigators have removed seven boxes of files from the department's executive offices.

A team that includes two assistant U.S. attorneys from New York, Michael Taybak and Barbara Guss, and a postal inspector began interviewing witnesses this week.

Among those questioned were lawyers in the department's San Francisco office who had knowledge of the transaction, and former Deputy Insurance Commissioner George Grays.

Grays is awaiting sentencing after pleading guilty to charges that he engaged in a kickback scheme. He has become a government witness in a separate investigation of Quackenbush's activities being conducted by a task force that includes the Sacramento office of the FBI, the U.S. attorney's office and the California attorney general.

That investigation was launched shortly after Quackenbush was forced to resign, following disclosures that he had allowed insurance companies to donate to foundations he created rather than face fines for mishandling Northridge earthquake claims.

The assets of one of the foundations were used to create public service television commercials designed to increase his political visibility.

U.S. attorneys' offices in New York and Sacramento and spokesmen for the California Insurance Department declined to comment about the latest subpoenas.

An attorney for Lloyd's confirmed that it received a request from the New York task force to produce documents relating to the California transaction.

"We are fully cooperating with the inquiry by Mr. Taybak's office," said Joseph P. Gunset, general counsel for U.S. regulatory affairs for Lloyd's.

The New York task force began its probe of Lloyd's in 1996, after American investors complained that the British insurer had sought their investment without adequately disclosing that it faced costly asbestos claims that were likely to increase.

As a result, many American investors in Lloyd's were forced to pay millions of dollars to the insurer when it did not have the assets to meet all its claims.

In California, the Department of Corporations sued Lloyd's, claiming it had defrauded American investors and sold securities that should have been registered under state law.

Quackenbush hired a prominent law firm to file petitions for him to intervene on Lloyd's behalf in the corporations case and in several other private lawsuits. The corporations case eventually was dismissed on a technicality.

At Quackenbush's request, Lloyd's subsequently paid $400,000 to the Department of Insurance. The money was used to reimburse the department for the legal fees Quackenbush incurred when he sided with Lloyd's.

"Now that the U.S. Justice Department's criminal investigation of Lloyd's has extended its reach to California, we expect it to finally uncover the long concealed Quackenbush-Lloyd's alliance," said Jeffrey Peterson, executive director of a group representing disgruntled Lloyd's investors.

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