Berk­shire sued in ‘re­verse Ponzi scheme’

New York City bike courier firm seeks $18M in dam­ages

USA TODAY US Edition - - MONEY - Kevin McCoy @km­c­coynyc USA TO­DAY

Bil­lion­aire in­vestor War­ren Buf­fett’s Berk­shire Hathaway con­glom­er­ate has been sued by a New York City bike courier com­pany for al­legedly schem­ing to steal in­sur­ance pre­mi­ums in a “re­verse Ponzi scheme.”

Break­away Courier, a com­pany with roughly 300 em­ploy­ees, in a law­suit filed Fri­day ac­cused Berk­shire and its Ap­plied Un­der­writ­ers sub­sidiary of im­prop­erly “si­phon­ing ” work­ers’ com­pen­sa­tion in­sur­ance pre­mi­ums “through a web of un­der-col­lat­er­al­ized shell com­pa­nies.”

The al­leged fraud “is es­sen­tially a re­verse Ponzi scheme,” the courier firm charged in a 46-page le­gal com­plaint filed in New York County State Supreme Court.

Berk­shire and Ap­plied Un­der- writ­ers promised Break­away and oth­ers who sought the in­sur­ance cov­er­age dis­counted rates, a share in un­der­writ­ing prof­its from the poli­cies and re­wards for low lev­els of claims and losses, the law­suit al­leges.

The New York al­le­ga­tions fo­cus on Rein­sur­ance Par­tic­i­pa­tion Agree­ments — com­plex deriva- tive in­stru­ments the law­suit says shift all risk of losses from worker in­juries back onto those who are in­sured.

“Vic­tims are led to be­lieve that their “cap­i­tal” is be­ing paid into “pro­tected cells,” which will even­tu­ally be re­turned to them,” the com­plaint al­leges. “In­stead, Berk­shire Hathaway il­le­gally siphons off pre­mi­ums through an un­li­censed, un­reg­is­tered and un­der­col­lat­er­al­ized Hawai­ian en­tity, leav­ing New York em­ploy­ers and in­jured work­ers with­out the funds that New York State re­quires to be avail­able to cover losses due to worker in­juries.”

Reg­u­la­tors in Cal­i­for­nia, Ver­mont and Wis­con­sin “have all con­demned this scheme as il­le­gal,” the law­suit charged.

Berk­shire rep­re­sen­ta­tives did not im­me­di­ately re­spond to a mes­sage seek­ing com­ment on the le­gal com­plaint, which seeks at least $18 mil­lion in dam­ages and the re­turn of all in­sur­ance pre­mi­ums paid.

The con­glom­er­ate’s Class A shares fell nearly 2% Tues­day.

Headed by Buf­fett, the Oma­habased con­glom­er­ate also has sev- eral well-known in­sur­ance-re­lated sub­sidiaries, in­clud­ing Ge­ico auto in­sur­ance and Gen­eral Re rein­sur­ance.

Ray­mond Dowd, the at­tor­ney rep­re­sent­ing the bike courier com­pany, told the In­sur­ance

Jour­nal the law­suit is sim­i­lar to a case in which Cal­i­for­nia’s in­sur­ance com­mis­sioner faulted Berk­shire’s Ap­plied Un­der­writ­ers and Cal­i­for­nia In­sur­ance sub­sidiaries for sell­ing non-tra­di­tional work­ers’ com­pen­sa­tion poli­cies. That case is con­tin­u­ing.

Dowd also said the al­leged scheme dif­fers from a more tra­di­tional in­sur­ance pool.

“This is a pool with a drain, and the drain goes right into Berk­shire Hathaway,” he told the In

surance Jour­nal. “Ev­ery­thing is swept out of the pool into a Hawaii cap­tive.”

Martin Schwartz­man, a for­mer of­fi­cial of the New York Depart­ment of Fi­nan­cial Ser­vices, sub­mit­ted an af­fi­davit with the law­suit that con­cluded the Berk­shire plan could face the bike courier com­pany with “po­ten­tially un­lim­ited li­a­bil­ity in the event of mul­ti­ple cat­a­strophic losses.”

CLIFF OWEN, AP

Shares of in­vestor War­ren Buf­fett’s Berk­shire Hathaway fell al­most 2% Tues­day.

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