Pennsylvania state insurance commissioner Michael Consedine has filed an amended Commonwealth Court lawsuit blaming top executives of a failed Villanova construction surety company with "raiding" and "diversion" of millions in company cash.
The firm, First Sealord Surety Inc., was taken over by Consedine's department in February. The failure cancelled policies for hundreds of construction firms and left taxpayers liable to cover the firm's losses.
As a group, First Sealord founders Kenneth L. Brier of Bala Cynwyd and Ted A. Drauschak of Pottstown, chief financial officers Joel Cooperman of Upper Gwynned and Robert Ghegan of Swedesboro, and attorney Gary L. Bragg, are responsible for "the diversion of more than $4.275 million" to other businesses they controlled, and for "the wrongful raiding of over $3.5 million" in additional funds, the state alleges.
The state's lawsuit also blames the group for "under-reserving and under-reporting" claims and losses to state officials and the firm's own auditors and actuaries, and for "the secretive diversion of their time, attention and other resources" away from the insurer and "to the betterment of multiple real estate development and hotel companies owned and operated by certain Defendants."
Among other projects, Brier and Drauschak were developers of the $12 million Fairfield Inn in Millville, N.J., a project that included $1 million in New Jersey Economic Development Administration loans and Millvlle Enterprise Zone public financing, according to news accounts covering the hotel's opening in 2010.
Messages left at the Villanova office of Broadlands Financial Group LLC, a construction financial services firm controlled by Brier and Drauschak; to Elkins Park lawyer Robert H. Nemmeroff, who represents the First Sealord officers; and to Chicago lawyer Alan I. Becker, who represents lawyer Bragg, weren't immediately returned.
Brier, a former U.S. Army colonel, and Drauschack founded First Sealord in 1992 and hired Cooperman as CFO in 1994, shortly before taking the company public. Its original name was Mountbatten Surety, after the British navy's former First Sea Lord, Admiral Louis Mountbatten.
Global insurer Zurich bought the firm in 1998, keeping the executives in place. In 2003, the executives raised money to buy it back from Zurich under the name First Sealord, and also founded Broadlands. Ghegan replaced Cooperman as First Sealord's CFO in 2008. Bragg was the firm's outside lawyer.
When the construction industry stalled in 2008, Drauschack tried to grow Broadlands as an alternative energy construction consultant through expensive global marketing efforts, known inside the company as "elephant hunting." These efforts cost a lot but brought no new business, accordoing to the lawsuit.
While those efforts were ongoing, "from approximately 2008 through the end of 2008, Brier, Drauschak and Copoerman diverted over $9.8 million of [First Sealord Surety] cash to Broadlands." By the end of 2010, "Broadlands owed [First Sealord] over $5.5 milllion." They were able to raise some of that amount by appealing to non-executive investors in the firm.
The "diversion of millions" during those years provided "no benefit whatsoever" to First Sealord, according to the suit. Throughout the company's history, Brier, Drauschak and Cooperman all "spent substantial time" on their side real estate businesses, in violation of their employment agreements, the suit alleges.
As the company's financial losses mounted, the executives destroyed or removed records, the state suit alleges. A.M. Best cut its credit ratings; efforts to sell the firm fell through. Finally the state took over.
The lawsuit demands the executives return the money they took from First Sealord. It also alleges "wrongful diversion," "raiding cash collateral," at least one count of "civil conspiracy in breach of fiduciary" against each of the four First Sealord officers, "voidable transfers" volations against lawyer Bragg and the officers serving prior to 2008, "fraudulent reserving" against the executives in charge after 2008, and "professional negligence" against lawyer Bragg.