State Accuses Golden Eagle of ‘Shell Game’

SAN DIEGO â€”  Top executives of Golden Eagle Insurance Co. engaged in a “conscious strategy of misleading the stateâ€� by manipulating the company’s data records, state Insurance Commissioner Chuck Quackenbush charged Thursday.

At a news conference here in which he accused ousted Chairman John Mabee and Mabee’s lieutenants of conducting a “shell game� with Golden Eagle’s finances, Quackenbush produced what he said was new evidence of the scale of their mismanagement.

Among other things, he said, the executives tried to shift blame for the insurer’s mounting problems to a whistle-blowing employee, even as state regulators closed in earlier this year.

Quackenbush displayed copies of memos and computer files that he said detail a “continuing pattern of deceit� and improprieties designed to hide the insurer’s reserve shortage. That shortage--a gap between what the insurer should have held in its accounts to cover expected claims and the amount it actually held--is now expected to exceed the $138.5 million previously estimated by regulators, officials said.

Regulators say the shortfall, combined with evidence that executives were altering records to hide Golden Eagle’s tenuous financial condition, caused them to seize the company on Jan. 31 and install a conservator. The $900-million, 100,000-policy company is the state’s third-largest workers’ compensation insurer.

Among the documents produced Thursday was one internal memo, allegedly in Mabee’s handwriting, detailing a plan to shift money from one business account to another.

“This will tend to throw them off for sure,� reads the memo, which appeared to be addressed to Golden Eagle Chief Financial Officer Ted Wilkens and refers to insurance regulators.

Mabee and other officers of the company were unavailable for comment Thursday. In the past, however, Mabee has derided Quackenbush’s investigation as politically motivated. He said all transactions made with Golden Eagle funds were legitimate and legal, and he blamed disgruntled employees for falsifying internal records.

Mabee, a well-known horse breeder and San Diego society figure, Wilkens and four other Golden Eagle executives were booted out of the company when it was seized.

State-appointed conservator Karl Rubinstein said Thursday that state investigators so far have uncovered “dozens and dozens� of instances where Mabee and other executives doctored electronic policy and claims records to hide, even from the firm’s own actuaries, that the insurer was under-reserved.

Officials allege that in one instance, Wilkens moved one policy’s effective and loss dates from 1993 to 1995 so that a $300,000 claim filed by its holder wouldn’t count against the inadequate reserves.

Rubinstein said the data switching could not have been an inadvertent mistake made by management or a deliberate switch made by a disgruntled employee, as Mabee has previously suggested.

“In order to change a policy period, you had to go into the computer knowing the high security code clearance� known only by top managers, he said. “It’s extremely unlikely disgruntled employees would have had access� to the codes, he said.

Another memo released by state officials, dated September 1993 to Mabee from Wilkens, records an “improper� transfer of $130,000 in insurance company funds to the Big Bear profit-sharing plan, Rubinstein said. The plan was a fund set up for employees of a supermarket chain Mabee once owned, he said.

The memo also indicates that the amount was improperly written off the books of Mesa Reinsurance, a Golden Eagle affiliate, as a bad-debt expense. That is an example of “very serious misconduct . . . that demonstrates beyond any doubt the very serious mismanagement of the company,� Rubinstein said.

Quackenbush and Rubinstein also alleged that in January, Golden Eagle manufactured a bogus “incident report� backdated to 1996 that attempted to shift blame for some of the company’s problems to Kevin Curry, a former employee who filed a wrongful-termination suit against Golden Eagle in San Diego County Superior Court last month.

The documents disclosed Thursday were filed this week in San Francisco County Superior Court as the commissioner builds his case against Mabee, who is expected to file suit to regain the company.

The state plans to sell Golden Eagle in a sealed-bid auction that closes April 4. As long as company losses do not exceed $400 million, outside companies will probably be willing to pay enough to make up for the shortfall, Rubinstein said.

Regulators allege that much of Golden Eagle’s reserve shortfall was caused by Mabee’s practice of draining the company of cash by taking unsecured loans, totaling $69 million, since 1989. On Monday, the commissioner demanded that Mabee repay the loan or face a lawsuit.

Although he did not address the charges made by the commissioner Thursday, Mabee did make public a letter in which he invited the state to sue him. Mabee said he wants his “day in court,� that Golden Eagle is a profitable, adequately reserved company and that Quackenbush is seeking “publicity for yourself and your political ambitions.�