Grand Island insurance agency with more than $100 million in debts is being investigated for possible fraud

Grand Island insurance agency with more than $100 million in debts is being investigated for possible fraud and for selling investments in the company despite promising not to do so, state officials said Wednesday.First Americans Insurance Service Inc., which served Native American tribal governments, entered a voluntary moratorium in August 2007 against selling its debt, according to the State Banking Department.But in an order stopping any more such sales, the department said evidence indicates that company agents sold promissory notes to a Kansas resident and at least three Nebraskans between October 2007 and November 2008.Selling such notes without proper authorization would violate the Securities Act of Nebraska and would be a felony, said Sheila Cahill, legal counsel for the Banking Department's Bureau of Securities.State banking officials also were looking into what investors were told about the company and how the promissory notes were described, Cahill said.Stella Levea, First Americans president and treasurer, did not return several phone calls seeking comment.The company filed for Chapter 11 bankruptcy this month. One investor told The World-Herald he was asked to put money into the company only weeks before its Jan. 12 bankruptcy filing.Arthur Kline, 90, of Grand Island, said he invested $50,000 in addition to more than $100,000 he had invested years earlier.
"It feels like I got the shaft," Kline said.Nebraska Attorney General Jon Bruning said the State Patrol would help conduct the criminal investigation."A loss of this magnitude without a real explanation of how that loss occurred certainly raises questions about whether fraud occurred," Bruning said.Along with Levea, executives of the company include James Masat and Kenneth Mottin.In its bankruptcy filing, First Americans listed hundreds of creditors, many of them Nebraskans. Major creditors are owed as much as $5.7 million and $3.8 million, according to the bankruptcy filing.The company works with tribal governments, businesses and casinos in more than 20 states, writing commercial property and casualty and workers' compensation policies through several insurance firms, said Omaha attorney Robert Craig, who is handling the Chapter 11 bankruptcy filing for First Americans.
The insurance policies sold to tribes through the agency appear to remain in force, Craig said.The company, which employs about 20 people, said it had between $100 million and $500 million in liabilities and up to $10 million in assets."It's a very big gap. There's nothing I could say that would eliminate that," Craig said, adding that the liabilities were closer to $100 million than $500 million.Some people, Craig said, have referred to the company's selling of debt as a "Ponzi scheme," which is a type of fraud that provides returns to investors out of money paid by new investors. Eventually such schemes collapse.First Americans sold promissory notes to investors and promised high returns, Craig said. That structure got "out of control," but calling it a Ponzi scheme is inaccurate, he said."It's a very well-run and productive insurance agency," Craig said. "It's this investment vehicle used that ended up getting out of control."