‘Victims everywhere’ in $100 million Fort Lauderdale-based Certified Services fraud
Oct 27, 2010
The following article was posted to the Broward Bulldog on October 27, 2010:
‘Victims everwhere’ in the $100 million Certified Services fraud
By Dan Christensen
The $100 million-plus scam behind the collapse of Fort Lauderdale’s Certified Services is a classic South Florida courtroom tale of greed and woe.
Hundreds of investors who bought Certified’s publicly traded stock were wiped out as insiders looted the company, buying luxury cars and diamonds. Insurance companies who did business with Certified got stiffed for tens of millions of dollars in claims. And injured low- and middle-income employees across the country who counted on Certified to provide worker’s compensation insurance learned too late that their coverage was actually a mirage.
“There are victims everywhere,” U.S. Securities and Exchange Commission attorney Christopher Martin said in an interview.
Certified, headquartered next to Executive Airport, was a professional employer organization (PEO) with 1,900 corporate clients that have approximately 53,000 employees in 32 states. It made money by handling personnel services for small- and medium-sized companies – including payroll and workers’ compensation coverage supposedly to be purchased through licensed insurance providers.
Former Certified President and Chief Executive Officer Danny Pixler, who once owned a million dollar home on Bayview Drive, is now serving a 60-month sentence after pleading guilty last year to a federal conspiracy charge in the scheme. Two others involved with the company also went to prison.
But the man a federal judge now says was the puppet master, W. Anthony Huff, has not been charged with a crime, though he has been pursued under civil law. In fact, according to the judge, Huff is back in the lightly regulated PEO business with a new company – Tampa-based 02HR – “where he continues his less-than-aboveboard ways.”
Huff, a convicted felon and Kentucky resident, was hit with civil fraud charges by the SEC in 2008 as a result of the Certified debacle. Fort Lauderdale U.S. Magistrate Judge Robin Rosenbaum held a week-long bench trial last February.
In a final judgment issued Friday, the judge held Huff liable for federal securities law violations and ordered him to cough up more than $13 million in ill-gotten gains, including interest. He also was fined $600,000, and enjoined from further violations of federal law, and barred from serving as an officer or director of any publicly traded company.
Huff, who the judge noted once kept “stacks of cash” in his office safe for “business emergencies,” has 15 days to pay.
No decision has been made on whether Huff will appeal.
“Mr. Huff is evaluating his options,” said his Miami attorney, Russell C. Weigel III.
In a 122-page ruling issued Sept. 30, Rosenbaum recounted Huff’s bold-yet-hidden scheme that ultimately duped the investing public and secretly transformed Certified into his “personal piggy bank” between 2001 and 2004.
“Huff deliberately decided to control Certified from the background and not to take a named official position with Certified so he would not have to disclose his prior criminal insurance dealings,” the ruling says.
Huff pleaded guilty in May 2003 to federal mail fraud charges in Kentucky regarding his association with a wholesale trucker’s insurance brokerage, All Risk Services Ltd.
Working in the shadows at Certified, the court said, Huff enticed investors by overstating the company’s financial condition by approximately $110 million. To do that, he booked $47 million in bogus letters of credit and veiled $65 million in liabilities.
Huff also diverted more than $130 million from Certified to a company he controlled called Midwest Merger Management LLC.
Not all that money went into Huff’s pocket, the court said. Millions were spent to keep Certified going, but Huff also siphoned millions to himself and his spouse, Sheri, to buy a jet, boats, diamonds, homes and a farm in Kentucky. Sheri Huff was ordered to give back $3.8 million.
Certified was a shell corporation with no business operations when Midwest acquired a controlling interest in November 2001. Soon, it began to acquire other PEO businesses, including its Cura Group subsidiary.
A key part of Certified’s business was to provide its clients with required workers’ compensation coverage through authorized insurance companies. One company it worked with was Continental Casualty Company, the large commercial insurer known as CNA.
At one point, Certified had purchased policies from CNA to cover its clients’ workers. But when CNA announced it would hike Certified’s deductible, it required Certified to post collateral to maintain coverage needed to continue in business
In response, Certified produced more than $40 million in fake letters of credit. CNA didn’t find out until it went to draw on them. The scheme led to more than $60 million in losses for CNA, the court said.
Insurance companies in Oklahoma and Washington were also hit hard by the scheme.
Certified landed in bankruptcy court in 2006 with its subsidiary, Certified HR Services. Its debts were discharged in 2008 as part of a liquidation plan.
In an ironic twist, the company Huff now controls, 02HR, purchased the bankruptcy estate of Certified/Cura – ”a turnkey PEO business,” as the judge put it – for about $11 million.
“Huff reacquired the benefits of controlling Certified without having to continue to be responsible for significant debts that Certified, when Huff previously controlled it, had incurred,” Rosenbaum said.
In contrast, the judge said, Certified’s unsecured creditors, including CNA, will recover between 15 and 30 cents on the dollar and the bankrupcty estate will be left “approximately $40 to $50 million under water.”
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