Standridge Falsified Collateral, Insurance Department Alleges

by Gwen Moritz  on Wednesday, Mar. 3, 2010 4:06 pm  

Steven Alan Standridge of Mount Ida had his insurance license yanked by the Arkansas Insurance Department after regulators became convinced that he had falsified collateral.

Steve Standridge allegedly falsified the collateral he used to purchase Gibraltar National Insurance Co. of Little Rock last year and also defaulted on a premium finance loan that had been misrepresented to the lender, according to orders issued by the Arkansas Insurance Department on Tuesday.

Standridge, president of Steve Standridge Insurance Inc. of Mount Ida, has agreed to retire immediately from the insurance business, his attorney, Tom Curry of Arkadelphia, told ArkansasBusiness.com on Wednesday. (SSI's Web site claims 17 offices, but the Insurance Department order estimated the number of offices at 11.)

Standridge's insurance license was yanked in an emergency suspension order (PDF) issued by Insurance Commissioner Jay Bradford on Monday, and Steve Standridge Insurance was placed under regulatory supervision in a separate order (PDF).

Taken together, the two orders describe a convoluted financing scheme in which Standridge and his wife, Debbie, borrowed $4 million from First Service Bank of Greenbrier to buy troubled Gibraltar from Ed Harvey, the Little Rock businessman who also owned Continental Express trucking company and who is the father-in-law of U.S. Sen. Mark Pryor.

The transaction, which seemed designed to save Gibraltar from insolvency, had been approved by Bradford in January 2009. That order indicates that the sale price was $2 million, although it also refers to a $2 million "surplus note" from Gibraltar to the Standridges.

The personal loan from First Service was used to buy two certificates of deposit in the name of Gibraltar Insurance. At the time of the purchase, Standridge led insurance regulators to believe that he would collateralize the loan by pledging the assets of his existing business, Steve Standridge Insurance Inc. The board of SSI had supposedly approved of using SSI assets as collateral, and this arrangement was supported by documents supposedly prepared by First Service Bank and delivered to the Insurance Department during a final review of the Gibraltar sale last August. Prior to the sale, the SSI board included two executives of State Auto Insurance Co. of Columbus, Ohio, which had helped finance SSI's acquisition of small agencies over the past few years.

Then last month, on Feb. 12, insurance regulators discovered that the $4 million worth of CDs held in Gibraltar's name were pledged as collateral on the First Service loan to the Standridges. How this discovery was made is not explained in the orders.

Five days later, on Feb. 17, Steve Standridge endorsed the two CDs for withdrawal and instructed First Service to use them to pay off the personal loan even though, according to insurance regulators, he "was not an authorized signatory as required for withdrawal of the funds."

On the same day, SSI took out a $4 million loan from First Arkansas Bank & Trust of Jacksonville and used that money to buy more CDs in the name of Gibraltar. Standridge "then represented to Gibraltar's board of directors that the assets of Gibraltar had been restored and were unencumbered and not pledged as collateral for any indebtedness." The next day, Gibraltar's board of directors learned that the new CDs were, in fact, the only collateral on the new First Arkansas loan to SSI.

The following week, on Feb. 24, insurance regulators learned from the Arkansas State Bank Department of another problem with Standridge that began during the same time that the Gibraltar deal was being finalized. In June 2009, Standridge had approached the Bank of Star City about financing insurance premium for some SSI clients. "The Bank of Star City agreed to try one such arrangement," the license suspension order against Standridge said. The supervision order against SSI gave more details: a $499,288 loan to finance the premium on a commercial property policy for a company in Camden. It does not tell exactly when the loan was made. (The order originally gave the total amount of the loan as $856,311, but the figure was revised in an amended order.)

Although the Bank of Star City received an executed copy of the premium finance agreement signed by the unnamed client, as debtor, and by Standridge, as guarantor, the bank never got a copy of the actual policy. If it had, it would have discovered that the policy was actually issued months earlier, on Nov. 1, 2008, and was set to expire on Nov. 1, 2009.

Several monthly payments on the premium finance loan were apparently made by Standridge or SSI rather than the client, but when "the most recent payments" were missed, the bank began to investigate. That's when the Bank of Star City discovered that the policy on which it had financed the premium had been canceled back on Aug. 23.

The bank has been unable to collect the approximately $430,000 still owed on the loan and filed suit in Lincoln County Circuit Court on Feb. 26.

On Feb. 25, the day after the Insurance Department learned of the problem with the Bank of Star City loan, it learned that Richard "Rick" Miley, president of State Auto subsidiary Broadstreet Capital Partners Inc., had not actually signed the document agreeing to pledge SSI assets as collateral on the loan used to buy Gibraltar. On March 1, the other State Auto executive on the SSI board, Mark Blackburn, informed the Insurance Department that he had not signed the board consent document either.

 

 

Please read our comments policy before commenting.