Many of you may have heard about the SEC civil complaint alleging a massive ponzi scheme operated by Stanford Financial WSJ Article . Recently, plaintiffs filed a class action law suit against Willis Group, a UK-based insurance broker, and other defendants. The suit is filed on behalf of defrauded Mexican depositor clients of Houston based Stanford Financial Group and alleges Texas securities law violations by Willis and the co-defendants in the massive investment fraud scheme perpetrated by Stanford Financial Rueters Article.
The latest case is Canabal v. Willis of Colorado et al, U.S. District Court, Northern District of Texas (Dallas), No. 09-01474 and also names Mr. Robert S. Winter. Mr. Winter is a Bond Specialist with Bowen, Miclette & Britt and was elected to the Board of Directors of Stanford International Bank in 1998. He was also the primary insurance broker for all policies held by Stanford International Bank and its affiliated companies.
It is alleged that "safety and soundness" letters from Bowen, Miclette & Britt were signed by Robert Winter without disclosure that Mr Winter was on the Board of Directors for Stanford International Bank news video from fox. Furthermore, the lawsuit filed in Dallas, states that 'Willis agreed to Stanford's request to provide "safety and soundness" letters, and that "the clear intention" was for the letters to be used in Stanford's marketing to help retain and attract clients." Rueters Article . These "safety and soundness" letters reportedly were sent to Stanford's agents identifying the insurance policies supposedly underlying Stanford International Bank's operations. The allegations are that Willis would provide these letters to Stanford, and at times, directly to investors, with the understanding that investors would rely on the letters in deciding whether or not the investment was safe and insured.
I've never understood why Organizations do not see the conflict of interest when having their insurance broker appointed to the Board of Directors. In many cases, an insurance broker is paid a commission, a percent based on the total premium that the insured organization pays. Under this model, as the insured organizations exposure grows, so does the insurance brokers compensation. As you can see, this could result in a conflict of interest. Furthermore, in the Stanford Case, the broker was sending out letters that investors perceived as an independent assesment of the financial institutions Risk Management. Obviously this was not the case.
Work with an independent broker that will advocate on your behalf (for that matter, it doesn't make sense to work with a Publicly traded broker in the first place- at a publicly traded firm, who's best interest does your broker have? yours or his shareholders? There is a reason why CPA's and attorney's are not publicly traded, but that is for another blog.). Insurance Brokers BOD duties should be restricted to Non Profits (where they often know many influential people and are great at fundraising) and to their own firms or associations. What ever the case, an insurance broker does not belong on the BOD of a client of the firm, whether or not that the insured is an individual client of the broker.
Cliff Rudolph
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