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May 3, 2010

INSURANCE AGENT CONVICTED OF MULTI-MILLION DOLLAR INSURANCE FRAUD SCHEME

(HOUSTON) – A Houston federal jury has convicted Michael N. Swetnam Jr., 46, of Harlingen, Texas, of three counts of mail fraud for a scheme involving more than $3.8 million stolen from Valley Baptist Hospital, United States Attorney José Angel Moreno announced today. The jury returned its verdicts Friday afternoon, April 30, before United States District Court Judge Keith P. Ellison.

Swetnam was charged with selling the hospital two fake insurance policies and two altered insurance policies that covered policy years 2006-2007 and 2007-2008 that resulted in approximately $3.8 million in payments from September 2006-September 2007. 

The evidence at trial showed that Swetnam was a licensed insurance agent for and with Smith-Regan Insurance in the Brownsville, Texas, area. Smith-Regan had a long-standing relationship with Valley Baptist - the largest provider of medical services in South Texas with a retirement community, fitness center, medical equipment distributor, managed care health plan provider and a network of health care facilities offering specialty service such as home health and hospice care, dialysis and rehabilitation. Swetnam had worked with Smith-Regan since 1985.

The jury heard testimony that Swetnam traveled to Mexico with Valley Baptist representatives in August 2006 where the hospital was given a $936,000 in hurricane insurance cover notes in the name of companies Arial Re, Landsdow and Lloyd’s of London. The hospital never had insurance coverage on these cover notes. A representative from the British Virgin Islands testified that Arial and Landsdow were non-existent companies. Swetnam admitted to creating two of the fake cover notes and forging the signature of a British Virgin Islands representative. In September 2006, the hospital paid Swetnam the $936,000. 

Swetnam later decided to add a $1 million fee to a Zurich policy that was purchased for approximately $1.3 million. Swetnam and another individual flew to New York to negotiate this policy. Evidence at trial showed Zurich sent the original policy to Swetnam, but it was altered to include a $1 million fee before it was sent to the hospital. The document presented to the hospital was signed by the Zurich representative but the premium due on the policy was increased by approximately $1 million. This fee generated Swetnam and others a profit of 100% on the commission – in addition to the 10% customary fee agreed to by Zurich. This was repeated in 2007, which resulted in another $1 million.  

The jury also heard testimony that Swetnam sent a letter to the hospital in September 2006 advising the hospital that he was unable to procure insurance coverage, but would personally guarantee the hospital from loss above $100 million. The guarantee agreement had the premium for June 2007 instead of 2006 and the letter submitted with the agreement noted the company on the cover note was Ariel instead of Arial. The hospital had no record of receiving this agreement. 

In June 2007, the hospital was sold another hurricane policy in the name of a company, Rac Re, that did not exist which resulted in a $886,000 payment to Swetnam and others. No hurricane insurance was purchased with this money. Swetnam argued that the hospital was covered under a different policy issued by Landmark American for this hurricane coverage, but the Landmark representative testified that Landmark did not cover the hospital at the levels exceeding $100 million that was covered by the 2007 RAC Re cover note. In addition, Swetnam’s insurance expert testified that Texas law precluded the collection of two fees for the same policy.

Swetnam argued that he had the ability to change the Zurich policies because he was a managing general agent, but Zurich had no record of this managing general agency. He argued that he tried to procure hurricane coverage for the Rac Re and Arial Re policy, but was unable to do so.

The jury found Swetnam guilty of three mail fraud counts pertaining to the check the hospital sent for the fraudulent Zurich policy, an invoice for the RAC Re insurance policy and an invoice for a Zurich insurance policy. Swetnam was acquitted on a conspiracy charge and five additional counts. Swetnam faces a maximum term of imprisonment of up to 20 years and $250,000 fine for each count of mail fraud. Sentencing is set for Aug. 4, 2010. Swetnam’s co-defendant, Brent Carter, was acquitted on all charges by the same jury.

This case was investigated by the United States Postal Inspection Service with the assistance of the Texas Department of Insurance and was tried by Assistant United States Attorneys Ryan D. McConnell and Gregg Costa with the assistance of Assistant United States Attorney Kristine Rollinson in the Asset Forfeiture Section.  

 

 

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