Investor in Insurance Agency Accused of Pyramid Scheme Launching A Spin-Off
First Americans Insurance Service, the Grand Island, Nebraska-based insurance agency that declared bankruptcy in January 2009, is being charged by federal prosecutors as having operated one of the nation's largest Ponzi schemes. And a man who lost his $3.7 million investment in First Americans, Gary Shovlain, is so convinced of the executive's innocence that he hired two of the people behind First Americans to advise him in launching a new insurance company also seeking Native clients, reported the Lincoln Journal Star.
"This is America. They're innocent until proven guilty," Shovlain told the Lincoln Journal Star. "There's no Ponzi scheme."
But federal prosecut0rs contend otherwise. They charged three officers behind First Americans—Stella Levea, James Masat and Kenneth Mottin— with 25-count indictments each through the U.S. Attorney's office in Omaha in December. The trio allegedly committed conspiracy against the government, mail fraud and insurance fraud, reported the Associated Press. They could face five to 20 years in prison on each count if convicted, reported the Lincoln Journal Star.
The officers, who claimed between $100 million and $500 million in liabilities when they filed for Chapter 11 bankruptcy, have all pleaded not guilty.
Officers of the insurance company are accused of operating a Ponzi scheme—essentially a pyramid scheme that persuades people, or tribes, to invest in a fraudulent operation, reported the Lincoln Star Journal. The scam promised a high 12 percent return, which some early investors were paid, possibly through the money put in by later investors.
According to Sholvain, who later served as chairman of a creditors committee that worked with a federal bankruptcy trustee in reorganizing First Americans, the company's promissory note program never intended to defraud anyone. It just collapsed when the economic recession led many investors to request that their initial investments be returned immediately.
Many investors have claimed in bankruptcy documents that they are owed millions of dollars.
Now Levea and Masat have joined forces as consultants with Sholvain for his new venture Native Nations Insurance (NNI), which will sell insurance to Americans Indians and will be writing that insurance "with an A-rated company on their paper," Sholvain told Indian Country Today Media Network. "This company is part of a group of companies that have a net worth of $1.5 billion dollars. They have contracts with some of the best reinsurers and claim companies in the nation."
Still, NNI is under investigation by the Nebraska Department of Insurance, a department spokesperson told the Lincoln Star Journal. The new agency is incorporated under the Omaha Tribe of Nebraska—the tribe's enterprise board approved the corporation on December 14.
Judi Morgan Gaiashkibos, executive director of the Nebraska Commission on Indian Affairs, told the Lincoln Star Journal that she is concerned the Omaha Tribe could get dealt the same hand as investors of First Americans.
"Our job is to be the watchdog for the tribes," Gaiashkibos told the Lincoln Star Journal. "I see some red flags here that I think anyone would see."
Shovlain responded to Gaiashkibos' quote in the Lincoln Star Journal with a personal letter, explaining, "NNI is not borrowing money from any Tribe so there is absolutely no risk involved."