One day after a judge set a new trial date for former Carolina insurance executive Greg Lindberg’s bribery case, the US Securities and Exchange Commission charged that Lindberg and an associate had defrauded clients out of $75 million by using undisclosed transactions.
An SEC news release said that Lindberg and Christopher Herwig, of Raleigh, North Carolina, and their Malta-based Standard Advisory Services violated federal investment and fraud regulations, according to the lawsuit.
The regulators allege that the defendants misappropriated more than $57 million in client funds and that Standard Advisory collected more than $21 million in advisory fees in connection with these schemes.
“In an attempt to conceal the fraud, Lindberg allegedly orchestrated the schemes through complex investment structures and a web of affiliate companies and allegedly used the proceeds to pay themselves or to divert the funds to Lindberg’s other businesses,” the SEC said in its statement.
Lindberg owned Standard Advisory Services, while Herwig was its portfolio manager, the complaint said. The transactions also involved four North Carolina insurance companies which Lindberg owned.
Lindberg, who owned a number of insurers and a reinsurance trust, served 21 months in prison after he was convicted of attempting to bribe the North Carolina insurance commissioner in 2018, seeking more favorable treatment from state regulators. That conviction was overturned in June by a federal appeals court, which said the trial judge erred in jury instructions, and Lindberg was released from incarceration.
On Monday, a federal judge set a new trial date for March 2023.
In a statement sent Tuesday, a Lindberg spokeswoman said that the SEC is now “piling on,” and that the suit came despite the fact that regulators have seen thousands of pages of documents that proved them wrong in their assumptions.
“They claimed no disclosure; we showed them actual disclosures,” Lindberg spokeswoman Susan Estrich said in a statement. “They claimed the companies weren’t real; we showed them that they were. We showed them bank records to prove where the money went, and to prove that there was no private ‘piggybank’ and that no policy holder ever lost a dime. We traced the money they couldn’t trace.”
The SEC complaint, filed in federal court in North Carolina, agreed that the transactions were designed to hide things — an elaborate effort to conceal the alleged fraud.
“The basic premise of defendants’ fraudulent scheme is simple: Lindberg,
Herwig, and SASL, all fiduciaries, repeatedly recommended and entered into transactions
that were not disclosed to and were not in the best interests of their clients,” the suit reads. “Yet, the
mechanics they used to accomplish the fraud were, by design, complex.”
Up until about 2017, Lindberg had acquired 100% ownership of four North Carolina insurance companies and a reinsurance trust, “which gave him control over hundreds of millions of dollars in premiums from their policyholders. Although the funds were supposed to be used to pay the policyholders’ insurance claims, Lindberg treated the funds as his own assets and used the money for any purpose he decided was in his best interest,” the SEC complaint reads.
Lindberg then directed his insurance companies to enter into “illogical” investment advisory
service agreements with SASL. From July 2017 through 2018, Lindberg, Herwig and SASL breached their fiduciary duties, acted in their self-interest and raided their advisory clients’ assets, SEC attorneys said.
In one alleged scheme, Lindberg and Herwig advised their Carolina insurance companies to sell their interests in certain Lindberg-affiliated special purpose vehicles (“SPVs”) and then
to re-purchase the same investments through a different investment vehicle at a higher price.
“Lindberg pocketed the difference, which was more than $57 million,” the suit alleges. In 2017 and 2018, Lindberg and Herwig caused the insurers to enter into 13 such transactions and the men allegedly used the fraudulent profits to enrich Lindberg and to support his other businesses.
“All the while, the board members of the NC insurance companies were left in the dark about Lindberg’s misappropriation,” the complaint reads.
As a result of the schemes, “the long-term liquidity of the NC insurance companies’ investment portfolios were compromised and they were consequently placed into receivership,” the suit said.
Lindberg and Herwig declined to testify during the SEC’s investigation, asserting their Fifth Amendment right against self-incrimination.
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