A day after a judge set a new trial date in the bribery case of former Carolina insurance executive Greg Lindberg, the U.S. Securities and Exchange Commission charged that Lindberg and an associate defrauded clients out of $75 million by used undisclosed transactions.
An SEC news release said Lindberg and Christopher Herwig, of Raleigh, North Carolina, and their Malta-based Standard Advisory Services violated federal investment and fraud regulations, according to the suit.
Regulators allege that the defendants misappropriated more than $57 million in client funds and that Standard Advisory collected more than $21 million in advisory fees related to these schemes.
“In an effort to conceal the fraud, Lindberg allegedly orchestrated the schemes through complex investment structures and a network of related companies and allegedly used the proceeds to pay himself or divert funds to other Lindberg businesses, ” the SEC said in its statement.
Lindberg owned Standard Advisory Services, while Herwig was its portfolio manager, the complaint said. The transactions also involved four North Carolina insurance companies that Lindberg owned.
Lindberg, who owned a number of insurers and a reinsurance trust, served 21 months in prison after being convicted of trying to bribe North Carolina’s insurance commissioner in 2018, seeking more favorable treatment from state regulators. That conviction was overturned in June by a federal appeals court, which said the trial judge erred in his jury instructions, and Lindberg was released from prison.
On Monday, a federal judge set a new trial date for March 2023.
In a statement sent Tuesday, a spokeswoman for Lindberg said the SEC is now “stacking up” and that the lawsuit comes despite the fact that regulators have seen thousands of pages of documents proving them wrong in their assumptions.
“They claimed no discovery; we told them the actual findings,” Lindberg’s spokeswoman Susan Estrich said in a statement. “They claimed that the companies were not real; we showed them that they were. We showed them the bank details to prove where the money went and to prove that there was no private ‘piggy bank’ and that no policeman lost a dime. We traced the money they couldn’t trace.”
The SEC’s complaint, filed in federal court in North Carolina, agreed that the transactions were designed to hide things — an elaborate attempt to hide the alleged fraud.
“The basic premise of the defendants’ fraudulent scheme is simple: Lindberg,
Herwig and SASL, all fiduciaries, repeatedly recommended and entered into transactions
that were not disclosed and were not in the best interest of their clients,” the lawsuit states. “However,
the mechanics they used to commit the fraud were, by design, complex.”
By around 2017, Lindberg had acquired 100% ownership of four North Carolina insurance companies and a reinsurance trust, “which gave him control over hundreds of millions of dollars in premiums from their policyholders. “Even though the funds were supposed to be used to pay policy insurance claims, Lindberg treated the funds as his own property and used the money for whatever purpose he determined was in his best interest,” the SEC’s complaint states.
Lindberg then instructed his insurance companies to engage in “illogical” investment advice
service agreements with SASL. From July 2017 to 2018, Lindberg, Herwig and SASL breached their fiduciary duties, acted in their own interest and raided the assets of their advisory clients, SEC attorneys said.
In one alleged scheme, Lindberg and Herwig advised their Carolina insurance companies to sell their interests in several Lindberg-related special purpose vehicles (“SPVs”) and then
to repurchase the same investments through a different investment vehicle at a higher price.
“Lindberg pocketed the difference, which was more than $57 million,” the lawsuit states. In 2017 and 2018, Lindberg and Herwig got insurers to enter into 13 such transactions, and the men allegedly used the fraudulent profits to enrich Lindberg and support his other businesses.
“All along, NC Insurance Company board members were kept in the dark about Lindberg’s embezzlement,” the complaint states.
As a result of the schemes, “the long-term liquidity of NC insurance companies’ investment portfolios was jeopardized and they were placed into receivership as a result,” the lawsuit states.
Lindberg and Herwig refused to testify during the SEC investigation, asserting their Fifth Amendment right against self-incrimination.
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