Coventry First CEO Calls AIG Unit’s Life Settlement RICO Lawsuit ‘Salacious,’ ‘Personal’
September 9, 2014 by Fran Matso Lysiak
FORT WASHINGTON, Pa. – Alan Buerger, chief executive officer of Coventry First, is calling a racketeering lawsuit filed by an indirect subsidiary of American International Group Inc. “salacious” and “personal as anything I’ve ever seen.”
Lavastone Capital LLC, a subsidiary of AIG formerly known as AIG Life Settlements, sued Coventry First in the U.S. District Court for the Southern District of New York for an alleged “egregious criminal scheme” to defraud it out of hundreds of millions of dollars. Lavastone cites violations of the Racketeer Influenced and Corrupt Organizations Act, fraud and breach of contract and fiduciary duty.Coventry First was responsible for finding attractive life insurance policies, or life settlements, for Lavastone to buy from policyholders on the open market, and paid Coventry First more than $1 billion in fees to do so, the suit alleges.
Coventry First, however, allegedly formed an illegal enterprise in which it bought life insurance policies at prices below what it knew Lavastone would pay to buy them, “laundered” the life policies’ titles and purchase prices through affiliated shell companies, and induced Lavastone to buy those life policies at inflated prices, the suit said.
“In sum, defendants are scam artists whose criminal scheme to defraud Lavastone falls squarely within the very racketeering conduct that the RICO statute was intended to redress,” Lavastone alleges.
Defendants include Alan Buerger, CEO of Coventry First and Montgomery Capital, the sole owner of Coventry First; as well as his wife, Constance Buerger, his son, Reid Buerger and Reid’s wife, Krista Lake, who own and control Montgomery Capital, the suit says.
Alan Buerger told Best’s News Service Lavastone’s suit represents “negotiation by litigation,” and said it’s the “nastiest divorce you’ve ever read.”
“We felt we had to respond to their suit,” Buerger said, calling it “salacious” and “personal as anything I’ve ever seen.”
In its statement, Coventry First said, “We are astounded that AIG would bring a lawsuit that as AIG knows, rests on a fiction.”
AIG said in a statement the Buergers ran a “classic racketeering enterprise” and seeks “to hold the Coventry defendants responsible for a ‘shill bidding’ scheme to secretly siphon hundreds of millions from AIG by manipulating the price of life insurance policies purchased by AIG.”
In its complaint, filed in the Supreme Court of New York, Coventry First alleges Lavastone not only breached the origination agreements but also wants to change the terms of the deal it made. The origination agreements are those by which Coventry First acquired life insurance policies on the secondary market and sold them to Lavastone, which acquired these policies for the AIG companies’ asset portfolio.
“In concocting, and then repeatedly threatening Coventry First with this claim of breach, Lavastone seeks to excuse its own conduct while unilaterally changing the terms of Coventry First’s performance, ” the company says. “And in the process, Lavastone attempts to remove certain contractual protections, including — in particular — privacy protections for insureds, to enhance the value of its policies.”
Lavastone said the defendants’ alleged racketeering activity “ramped up” after the financial crisis in 2008.
The defendants’ actions caused Lavastone more than $150 million in damages, which the company says would be tripled under the civil RICO statute, and noting that figure is likely “the tip of the iceberg.”
Over the course of its relationship with Coventry First from 2001 to 2011, Lavastone spent about $6.5 billion to purchase and maintain almost 7,000 life policies with a face value of almost $20 billion. Lavastone paid Coventry more than $ 1 billion in fees as part of their relationship — about $930 million in origination-related fees and about $90 million in servicing fees.
In 2006, Lavastone hired Coventry First to help Lavastone acquire life policies. Coventry did so under the parties’ life settlement policies’ origination agreement and through thousands of collateral transaction agreements with Lavastone to buy the individual life policies.
“Coventry was not permitted to mark up the purchase price before selling it to Lavastone, which is logical, given that Coventry was negotiating on Lavastone’s behalf, knew Lavastone’s maximum price, and was separately compensated under the contract for its efforts in this regard,” Lavastone says.
Coventry First is seeking to recover damages it alleges it suffered as a result of Lavastone’s breaches of its obligation under the origination agreement to buy policies exclusively from Coventry First, and for a declaration that Lavastone’s retaliatory allegations of wrongdoing by Coventry are “baseless.”
AIG’s complaint “is a cynical attempt to distract its shareholders from its own breaches and its failure to disclose the contract restrictions it seeks to escape,” Coventry First said in the statement. These limitations have an estimated value to the portfolio, and to Coventry First, of $700 million, it says.
In a statement, AIG said Coventry’s responding lawsuit “is a baseless attempt to distract attention from the fraudulent and illegal scheme that AIG alleged in its complaint.”
Rated AIG companies currently have a Best’s Financial Strength Rating of A (Excellent).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
