State: Georgia

Southeastern U.S. Insurance Co. (SEUS) founder M. Clark Fain III – now under investigation for a $10.2 million loan he received last year from his failing workers' compensation carrier – had business ties to a key defendant in the international probe of fake insurers in neighboring Florida, records show.

Federal court files in Jacksonville and records from the Georgia Secretary of State's office show Fain had a lengthy history in the professional employers organization (PEO) industry – before he launched what he called Georgia's eighth-largest workers' compensation carrier in June 2006.

Among his holdings was Atlanta-based PEO Corp., which he launched in 1997. The Georgia Secretary of State's Office revoked the company's charter on Feb. 24, 2001, a little less than eight months before Fain launched Southeastern U.S. Captive Insurance in Atlanta. No reason was given for the revocation.

The corporate secretary of PEO Corp. was Joshua A. Poole, at the time a licensed insurance broker working in Atlanta.

Poole, who went on to run two other Atlanta PEOs and to co-own a third, was indicted by a federal grand jury on April 12, 2007, in connection with the international investigation of PEOs that were led by Jacksonville, Fla.-based PEO Miralink Group.

Federal prosecutors have since convicted Poole, along with more than a dozen former PEO executives, insurance agents and others on charges they collected more than $100 million in premiums from employer/clients to buy workers' compensation coverage from carriers that never existed.

At the heart of the probe were Miralink and Regency Insurance of the West Indies – a defunct offshore carrier resurrected at a nonexistent address in Capistrano Beach, Calif. Poole admitted in a 2007 court filing he provided fake coverage from Regency and Transpacific International Insurance Co. and Pacific General Insurance Co., two bogus carriers chartered in New Zealand.

Poole admitted being part of the international conspiracy from March 2002 through February 2004 and said it involved people in Florida, Georgia, New Jersey, Illinois, California and the United Kingdom.

Poole, now 36, pleaded guilty to fraud and conspiracy charges in December 2007 and agreed to become a government witness in the ongoing investigation of Regency, Miralink and its affiliates. He was sentenced to two years in federal prison.

The indictment alleges that Poole, in concert with Miralink owner Thomas King in Jacksonville, operated Miralink of Atlanta, a PEO whose name he changed during the probe.

According to corporate records, Poole served as CEO and chief operating officer of Comp at Work and Compensation Services in Atlanta. The federal charges indicated he co-owned Horizons PEO in Atlanta.

Poole admitted using all three PEOs to provide fake coverage through Regency and the bogus New Zealand companies, while billing employer/clients $2.7 million for policies on which he collected weekly commissions from Miralink in Jacksonville.

Fain's company, PEO Corp., and Fain were not charged in the Regency probe. There was no indication, according to a source involved in the probe, they were ever under review beyond Poole's role as corporate secretary.

Fain has failed to return repeated telephone calls, including one placed to an affiliated business, Common Sense Claims, on Monday afternoon.

Poole's attorney in the Regency case, Edward T.M. Garland, did not return a telephone call Tuesday.

Based on a request for information from WorkCompCentral, the Georgia Department of Insurance was reviewing state brokers' records to track Poole's history.

WorkCompCentral reported Monday that Fain got a $10.2 million loan from SEUS to buy its key investment subsidiary, SOWEGA Properties LLC, on Dec. 31, 2008, without the required approval of Georgia Insurance Commissioner John Oxendine.

The company closed its 2008 books that year with $3.95 million in net underwriting losses and a little more than $2.8 million in overall net losses.

The size of the loan far surpassed the threshold at which it had to be reported to Oxendine and approved at least 30 days before the loan was closed.

The deal, in effect, removed a key asset from the failing insurer after SEUS provided about $3.6 million in fresh capital for land acquisitions and improvements in 2007 and 2008.

Oxendine's examiners reversed the deal during the second quarter of 2009, placed SEUS under administrative review last Sept. 11 and won a judge's approval to seize the carrier and liquidate it on Oct. 27.

But the failure left dozens of cities, counties and school boards without workers' compensation coverage. Some of them may be forced to pay workers' claims because of an unusual Georgia law that limits protection by the Georgia Insurers Insolvency Pool to employers with a net worth of $25 million or less.

The Georgia Department of Insurance confirmed last week that Fain's loan is under investigation, along with more than $4 million in payments SEUS made in 2007 and 2008 to claims-administration, bill-review and risk-management companies owned by Fain.

Fain also was the sole stockholder in SEUS, which he converted from a captive of the professional employer organization (PEO) industry in 2006.

In an interview with Georgia Public Broadcasting, Oxendine confirmed Fain's loan from SEUS is still under review.

"Whenever you have a transaction that’s such a large portion of the assets, it’s going to raise a question,” Oxendine told the public news service. "We then found out this ... deal was actually perfected without our consent. It was required to be approved.

"This is a very uncommon case,” Oxendine said. "The extent of the questionable accounting activities, the possible dishonesty of the accounting processes… we became very suspicious of the voracity of some of the statements being made to us. They were overstating their assets and understating their liabilities."