Probe launched into Grand Island insurance agency

Probe launched into Grand Island insurance agency
BY JOE RUFF
WORLD-HERALD STAFF WRITER

A criminal investigation has been launched against a Nebraska insurance agency that serves Native American tribal governments and has filed for bankruptcy protection with more than $100 million in debt.

The State Patrol will conduct the investigation, said Sheila Cahill, legal counsel for the Bureau of Securities in the State Department of Banking and Finance.

First Americans Insurance Service Inc. in Grand Island also has been ordered to stop selling debt to investors, Cahill said.

First Americans woks with tribes in more than 20 states, writing commercial property and casualty and workmen’s compensation policies through several insurance companies, said Omaha attorney Robert Craig, who is handling the Chapter 11 bankruptcy filing for First Americans.

The company said it had between $100 million and $500 million in liabilities and up to $10 million in assets. "It’s a very big gap," Craig said, adding that liabilities were at the low end of the scale. "There’s nothing I could say that would eliminate that."

Craig said some people have referred to the company’s selling of debt as a "Ponzi scheme," which is a fraudulent investment operation that provides returns to investors out of money paid by new investors. Eventually the schemes collapse.

Craig said First Americans sold promissory notes to investors and promised high returns. That structure got "out of control." But calling it a Ponzi scheme would not be accurate, he said.

"It’s a very well run and productive insurance agency," Craig said. "It’s this investment vehicle used that ended up getting out of control."

Several investors had threatened to file lawsuits against the company, Craig said. Filing for bankruptcy ends legal actions against the company, puts all claims into one court and allows it to reorganize and meet its obligations to the extent possible, Craig said.

Repaying all $100 million might not be possible, Craig said.

First Americans continues to operate, Craig said. Bankruptcy proceedings will help it decide whether it can continue in business, should be sold to another firm or close up shop, he said.

Insurance policies sold to tribes appeared to remain in force, Craig said.

Founded in 1977, First Americans has sold debt for years and paid high returns on interest. But the structure collapsed recently as promissory notes matured and the obligations could not be met, Craig said.

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