Two Men Charged in Insurance Investment Fraud Scheme that Caused Hundreds of Millions in Victim Losses
Two former executives were charged in an indictment unsealed today for their alleged participation in an insurance investment scheme that resulted in hundreds of millions of dollars in victim losses.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Special Agent in Charge Troy A. Sowers of the FBI’s Knoxville Field Office and Special Agent in Charge Matthew D. Line of IRS Criminal Investigation’s (IRS-CI) Charlotte Field Office made the announcement.
Andrew Scherr, 50, of Livingston, New Jersey, and Robert McGraw, 41, of Long Island City, New York, who were both executives with Southport Lane, L.P. (Southport), a New York private equity investment holding company specializing in managing investment portfolios for insurance companies, were each charged in an indictment filed in the Northern District of Texas with one count of conspiracy to commit crimes by or affecting persons engaged in the business of insurance, one count of conspiracy to commit wire fraud affecting a financial institution and five counts of wire fraud affecting a financial institution. McGraw appeared today before U.S. Magistrate Judge Steven M. Gold of the Eastern District of New York.
“According to the indictment unsealed today, Scherr and McGraw diverted hundreds of millions of dollars from insurance companies’ investment portfolios, leaving several companies unable to pay their policyholder claims,” said Assistant Attorney General Benczkowski. “The Criminal Division is committed to holding accountable those who defraud investors, especially those who target companies that rely on those investments to live up to the promises made to their policyholders.”
“Disrupting this corrupt scheme demonstrates the FBI’s commitment to aggressively pursue those engaged in acts of financial fraud,” said Special Agent in Charge Troy A. Sowers. “We commend our partner agencies essential to the investigation and prosecution of those who undermine the public’s trust.”
The indictment alleges that Scherr, McGraw and their co-conspirators defrauded insurance companies by causing them to exchange cash and other liquid, valuable assets for illiquid and fraudulently overvalued securities created by the defendants and their co-conspirators. As alleged in the indictment, Scherr, McGraw and their co-conspirators perpetrated the scheme, in part, by acquiring insurance companies and acting as an investment advisor for insurance companies, thereby gaining access to the management of the investment portfolios of victim insurance companies. Scherr, McGraw and their co-conspirators allegedly used Southport and affiliated entities to create fraudulently overvalued securities and replace assets held by victim insurance companies with these fraudulently overvalued and illiquid securities. The indictment further alleges that as a result of the scheme, victim insurance companies have collectively suffered hundreds of millions of dollars in losses.
An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
This case was investigated by the FBI’s Knoxville Field Office and the IRS-CI’s Charlotte Field Office. Deputy Chief Brian Kidd and Trial Attorneys Danny Nguyen and Caitlin Cottingham of the Criminal Division’s Fraud Section are prosecuting the case. Trial Attorney Andrew Tyler assisted in the investigation of the case.
The Criminal Division’s Money Laundering and Asset Recovery Section and the Securities and Exchange Commission also provided assistance in the investigation of this matter.
The Fraud Section plays a pivotal role in the Department of Justice’s fight against white collar crime around the country.