Steve Standridge Filings Jab At Lawyers

Allegations of falsified collateral and fraudulent loans haven’t resulted in criminal charges against former insurance agent Steve Standridge despite the passage of nearly two years.

But that doesn’t mean his legal problems haven’t been mounting.

In January, a flurry of court filings shed more light on Standridge’s purchase of troubled Gibraltar National Insurance Co. from Little Rock businessman Ed Harvey and revealed serial finger-pointing. The filings show:

• Standridge has been the subject of a federal investigation;
• Arkansas Insurance Com-missioner Jay Bradford, acting as receiver for Gibraltar, is still on the hunt for assets to cover nearly $2 million in claims;
• Bradford has accused First Service Bank of Greenbrier of helping Standridge deceive state regulators. The bank, in turn, has blamed two lawyers from the Mitchell Williams Selig Gates & Woodyard firm for facilitating the collateral fraud by allowing Standridge to “double-pledge” $4 million worth of First Service certificates of deposit.

(See Also: Steve Standridge Also Accused of Premium Finance Fraud)

In a lawsuit he filed last month, Standridge confirmed that he was being investigated by federal authorities. Specifically, Standridge and his Mount Ida business, Steve Standridge Insurance Inc., sued Continental Insurance Co. of Chicago for not paying $327,000 in legal bills associated with an investigation by the Arkansas Insurance Department and “federal authorities.”

Standridge’s criminal defense lawyer, Tim Dudley of Little Rock, told Arkansas Business last week that he didn’t know the status of the federal investigation.

Federal authorities “have not talked to me,” Dudley said. “I have no idea what they’re doing.”

The U.S. Attorney’s Office in Little Rock doesn’t comment on investigations and won’t confirm if one is under way.

The AID isn’t done with Standridge, even though he surrendered his license in the summer of 2010 after the department accused him of 72 counts of wrongdoing, including “demonstrating incompetence, but more likely [using] dishonest practices and demonstrated untrustworthiness and financial irresponsibility.”

“There still remain unresolved matters that are under investigation that we are not at liberty to discuss at this time,” AID spokeswoman Alice Jones said in an email to Arkansas Business last week.

If federal charges aren’t brought against Standridge, however, criminal and civil charges could be brought at the state level before the three-year statute of limitations expires in 2013.

Gibraltar Claims

As of Dec. 31, Gibraltar National, a small workers’ compensation carrier based in Little Rock, had assets of $59,300 against total claims of $1.9 million.

Insurance Commissioner Bradford, acting as receiver for the insolvent carrier, is hoping to re cover $4 million through a fraud lawsuit against Stand-ridge and First Service Bank.

The lawsuit, which was filed in Pulaski County Circuit Court in 2010, claims Standridge and First Service conspired to deceive insurance regulators by claiming that $4 million worth of CDs belonged to Gibraltar when they were really pledged as collateral on a loan to Standridge by First Service.

“The Bank knowingly participated in this fraud,” according to Bradford’s lawsuit filed by attorney Stephen Niswanger of Little Rock.

First Service has vehemently denied the allegations in the lawsuit. And last month, it filed suit in Pulaski County Circuit Court against the Little Rock law firm of Mitchell Williams Selig Gates & Woodyard PLLC and two of its attorneys, Lance Miller and Nick Thompson. Thompson has since left the firm and is now an attorney for United HealthCare of Arkansas.

First Service and Gibraltar were both clients of Mitchell Williams. However, First Ser-vice claims the law firm favored the interests of Gibraltar over the bank’s interests.

“Neither Thompson nor the Mitchell Firm ever alerted [the bank] that Steve Standridge intended to use the same CD’s [sic] that were being pledged to [the bank] to satisfy the AID’s capital and surplus requirements” for Gibraltar, the lawsuit said. “Clearly, Thompson and Standridge knew that Standridge intended to ‘double-pledge’ the CDs and that such action was likely to cause harm to” First Service.

As a result of the “double-pledged” CDs, First Service has spent money defending itself from the receiver’s litigation and faces more losses if Bradford wins a judgment.

Thompson and Miller de-clined to comment on the case. Harry Hamlin, managing director for Mitchell Williams, declined to comment on the case but said the firm would defend itself.

A week after the bank filed its lawsuit, Bradford amended his complaint to say that the bank was guilty of negligence even if a jury doesn’t find actual fraud. “The bank owed, undertook, and assumed a duty to Gibraltar to refute Standridge’s representations concerning the 2009 loan transaction, to complete and send accurate confirmations to the [AID] and Gibraltar’s auditors,” Bradford’s lawsuit said. “The Bank’s conduct prevented the Department from discovering Gibraltar’s insolvency.”

A trial date hasn’t been set.

Eyes on Gibraltar

Standridge, 55, started building his insurance empire in 1982 with the founding of his namesake firm.

Steve Standridge Insurance Inc. blossomed into one of the largest insurance agencies in Arkansas with 18 offices and 175 employees. His career peaked in 2006 when he was named the Professional Insurance Agents’ National Professional Agent of the Year.

Sometime around 2008, according to Bradford’s lawsuit, Standridge learned that Gibraltar was having financial difficulties.

Standridge decided that ownership of Gibraltar part of Ed Harvey’s diverse business empire, “would be beneficial to his family because they could participate in the profits of both companies whenever Gibraltar’s Workers’ compensation policies were sold to Steve Standridge Insurance Inc.’s clients,” Bradford said in the lawsuit.

Standridge set out to buy the insurance carrier for his adult children, Alisha Pollock and Jared Standridge, through their company, SASSA LLC.

Gibraltar, though, was on the verge of being forced into receivership. Before state regulators would approve the sale to SASSA, Gibraltar needed to be recapitalized.

The plan called for Steve Standridge to lend $2 million to Gibraltar and to invest another $2 million in the company. The $4 million total would be used to buy certificates of deposits to recapitalize the carrier, and “once these CDs were in place, Gibraltar would no longer be considered insolvent by [AID] and could continue its business,” the lawsuit said.

That was the official plan. But according to Bradford’s lawsuit, Standridge was “unable or unwilling” to come up with the $4 million in cash to meet Bradford’s approval without encumbering the CDs. So he turned to Thomas Grumbles, CEO of First Service Bank.

“Standridge concocted a scheme under which the Bank would loan $4 million to Standridge and his wife, who would then use the funds to purchase from the Bank CDs in the name of Gibraltar, which would then be secretly pledged as collateral for the loan to Standridge,” the lawsuit said.

“Standridge would then own Gibraltar, and the Bank would thereafter earn interest on its low-risk loan.”

Bradford’s lawsuit alleged that Grumbles knew about the plan and went along with it because of the bank’s long history with Standridge, his company and his family.

Bank’s Side

First Service Bank, however, says in its lawsuit against the Mitchell Williams firm that it “had no knowledge whatsoever of the terms of the SASSA’s acquisition of Gibraltar. … FSB also did not know that when Steve Standridge subsequently approached it about a loan that the loan was for the purpose of obtaining funds which would be used by Gibraltar to satisfy [its] capital and surplus requirements with the AID.”

First Service said it required that Standridge use the CDs as security for the loans with the bank and never waived that requirement.

Lance Miller at Mitchell Williams was the bank’s lawyer, and Thompson, then also at Mitchell Williams, was the attorney for Gibraltar. According to First Service, Thompson was aware in January 2009 — just days before the sale of Gibraltar was approved by the AID — that the injection of capital was supposed to be unencumbered and also knew that First Service wouldn’t make the loan unless the CDs were pledged to the bank. At some point, bank officials called Miller to ask about the CDs.

“While [the bank] was on the phone with Lance Miller, he handed the phone to Nick Thompson so that” Thompson could talk to the bank about the issue, the lawsuit said.

The bank said it didn’t know that Standridge had failed to disclose to regulators that the CDs had been pledged to First Service, but Thompson should have known and should have told the Insurance Department.

The bank is suing the attorneys and Mitchell Williams for breach of fiduciary duty and negligence and is seeking an unspecified amount of damages.

AID’s Side

Bradford, in the amended complaint, disputes First Service’s assertion that it didn’t know about the status of the CDs.

When the sale of Gibraltar closed in January 2009, the bank’s staff “prepared confirmations showing the CDs were unencumbered, which the Bank sent to the Department confirming that the CDs were free, clear, and unencumbered,” Bradford said in his lawsuit.

In January 2010, just weeks before the scheme was discovered, the bank sent another confirmation to Gibraltar’s auditors indicating that the CDs were unencumbered.

“This and the other confirmations are evidence that the Bank knew it acted fraudulently and was trying to hide its fraud from the Department and Gibraltar’s staff,” Bradford said.

Bradford said the bank’s conduct made Gibraltar’s financial situation worse because the AID didn’t know the company was insolvent. Danny Crabtree of Little Rock, the attorney for First Service, declined to comment.

Discovery

In February 2010, Gibraltar’s Pre-sident Audra Welcher discovered that Standridge had pledged all of Gibraltar’s assets for a personal loan. Welcher then reported it to the AID on Feb. 12, marking the end for Standridge.

In early March 2010, the AID issued an emergency order suspending Stand-ridge’s license over the allegations that he misrepresented the $4 million of collateral for Gibraltar.

The company went into receivership, but it couldn’t be rehabilitated. A liquidation order was issued on May 21, 2010.