Our readers may remember Weiss v Allstate attorney Richard Trahant occasionally stops in to chat with us. Today, he dropped by with the mother of all tips, the case of Perdiago v Adams & Reese L.L.P. et al filed Tuesday in New Orleans which we have added to our legal pages. This is a very long post but I hope our readers will take the time to read it and consider the implications of the misconduct alleged against Adams and Reese.
I did some googling and found this case had a little something for everyone and featured all the usual suspects, Edwin Edwards, indicted US Representative William Jefferson, former Mayor Marc Morial, disgraced former Orleans Parish DA (and former Clinton era NOLA US Attorney) Eddie Jordan, Robert Guidry plus a entire gaggle of local political figures. Frankly, reading the RICO complaint against Adams and Reese coupled with the news stories has me convinced this case is huge in its implications. First some background from Baton Rouge Channel 9.
The federal court case that sent former Governor Edwin Edwards to prison has a potential new can of worms. New paperwork filed in a mail fraud case lists Congressman William Jefferson as participating in a bribery scheme between former Treasure Chest Casino owner Robert Guidry and former U.S. Attorney Eddie Jordan. Both Guidry and Jordan were key players in the Edwards case……
Even the federal court labels the motion filed as ‘sensational.’ It all centers around Robert Guidry’s former attorney, James Perdiago. Back during the Edwards trial, Robert Guidry was a key witness against the former governor in 2000. Guidry claimed Edwards would collect bribe money from a dumpster. Now, Guidry’s own attorney is stirring the pot. Edwards was eventually convicted, due in large part, to Guidry’stestimony. Federal authorities got Guidry to testify against the former governor as part of a deal.
In October 2004, while Edwards was serving time in a federal penitentiary, one of Guidry’s former attorneys, James Perdigao, was arrested and indicted in a wire fraud sting involving more than $30 million. Perdigao agreed to cooperate with the government by giving them information. Perdigao alleges Robert Guidry, his client back in 2000, bribed then-U.S. Attorney Eddie Jordan, with the help of Congressman William Jefferson. In documents filed in federal court last week, Perdigo alleges, “…Perdigao related detailed information concerning Guidry’s payments to Congressman William Jefferson to influence the determination to be made by the then U.S. attorney on limiting the amount of jail time and the amount of fine, forfeiture and restitution Guidry had to pay.”
The motion, which was filed by Perdigao, also alleges an assistant U.S. attorney, who was involved in the prep sessions for Guidry, also profited by his association with Guidry. Again, quoting the motion, “…that… Guidry had given substantial sums of money to the AUSA.” There are other allegations made. Perdigao claims information he gave the government back in 2004 could have helped the Edwin Edwards appeal process. Perdigao claims, “The U.S. Attorneys Office could not risk validating any information that defendant provided, because to do so could not only jeopardize the conviction of Edwin Edwards, but also could seriously undermine the reputation of the U.S. Attorney’s Office of the Eastern District of Louisiana.”
9NEWS talked with current U.S. Attorney Jim Letten, who was the lead prosecutor on the Edwards case. Letten gave 9NEWS a statement. It reads, “There are a number of malicious misrepresentations that will be dealt with in court and swiftly.” New Orleans law firm Adams and Reese is also slammed in the filing by its former employee, James Perdigao. Adams and Reese managing partner, Charles Adams, Jr. tells 9NEWS, “Perdigao is lashing out at those who are holding him accountable for his actions – our firm who caught him and the government who is prosecuting him. Adams and Reese categorically denies Perdigao’s allegations of wrongdoing.”
The government has until May 9th to respond to the allegations. Federal Judge Eldon Fallon ruled that he would not hide a ‘motion to recuse’ from public view. Federal officials had tried to have the motion ‘sealed.’ Edwin Edwards’ attorney, Mike Small issued a statement late Monday afternoon. It indicates that he plans on meeting with Edwards this week to discuss their options. Also, there is no word back from the William Jefferson camp on this issue.
The criminal case is sensational for a variety of reasons including the allegations that an Assistant USA was bribed during the Edwards criminal trial by Guidry. Perdigao, who is cooperating with the federal criminal investigation took matters one step further with his RICO suit against his former employer and insurance defense firm Adams and Reese. Our readers may remember our reaction here at slabbed when it was revealed George Dale joined Robert Wooley at Adams and Reese when I penned the post From Insurance Regulator to Insurance Lobbyst: Incest in the System back in January. I noted:
It turns out George Dale is not the only local insurance commissioner going straight from his elected office to work in the Insurance Industrial Complex. Strangely Adams and Reese was silent on their hiring of Robert Wooley, the first insurance commissioner in Louisiana in several years not in jail because of corruption. This quote from the story sums up why none of the authors of this blog trust our insurance regulators and is the basis for our opinion that federal oversight of this industry is well past due:
“Bob Hunter, a former Texas insurance commissioner who is director of insurance at the Consumer Federation of America, said that Dale’s new job at a law firm that represents so many insurance interests is another unfortunate tale of regulators caring more about the industry than the people who elected them.
“Nothing surprises me any more. The insurance industry and the regulators are so intertwined. We’ve had now two presidents of the NAIC (National Association of Insurance Commissioners) go directly to lobbying jobs with the insurance industry, and we’ve had so many former insurance commissioners head off in that direction, it’s disgusting. How can the public trust state regulation with all this going on?” Hunter asked.”
Not one to doubt a good tip from a very reliable source I followed Rick’s instructions and skipped straight to paragraph 71 of the complaint. The allegations made against former Louisiana Insurance Commissioner Robert Wooley are nothing short of sensational.
Robert Wooley joined the Louisiana Department of Insurance in 1999 as former Commissioner Jim Brown’s Chief Deputy. In the fall of 2000, Brown was convicted of lying to an FBI agent, and Wooley took over as Acting Commissioner. The firm began recruiting Wooley in late 2001. In 2002, Wooley submitted a business plan to the firm which listed a number of insurance companies which he believed he could bring to the firm as clients.
With similar ethics constraints as Morial, Teamer, and Coulon, Wooley would be prohibited from representing insurance companies before the Louisiana Department of Insurance for a period of two years after he left office. But the firm proposed to put forward a “low-key grinder” to front the insurance regulatory work for Wooley during his two-year prohibition. In addition, the firm proposed to use Wooleyas a state legislative lobbyist for his insurance company clients. Plaintiff recommended to Adams, Spansel, and Stern to obtain an ethics opinion from the Louisiana Board of Ethics on the legality of a former Insurance Commissioner engaging in legislative lobbying on behalf of insurance company clients during his two-year prohibition. They decided that they did not want to risk an adverse opinion and instead would try to have Wooley “fly below the radar.” They advised plaintiff that his advice was no longer needed.
Notably absent from Wooley’s list of potential clients in his business plan was a “big fish” that was not already a client of the firm. The firm already represented State Farm, the largest homeowners’ insurer in the state. Brooks told Wooley to focus on developing Allstate Insurance Company, the second largest homeowners’ insurer with approximately 220,000 customers (roughly 20% of the homeowners’ market). Brooks further advised Wooley that he needed to use the power of his office to develop his “chips” with the insurance companies he regulates so that when he left office, he could call in his chips.
In 2003, Commissioner Wooleywas elected to a full term. Consistent with the advice and directives of Brooks and the firm, Commissioner Wooley helped push through a measure that allowed insurance companies to raise rates by up to 10% without the approval of the Louisiana Insurance Rating Commission. This so-called “flex-band” initiative promoted by Commissioner Wooley was a gift to insurers at the expense of Louisiana consumers. In addition, Commissioner Wooley’s measure failed to clearly define many of the reporting requirements needed to determine the impact of the flexible rating system.
Commissioner Wooley was also largely responsible for the creation of Louisiana Citizens Property Insurance Corporation and letting the insurance companies off the hook for the liabilities of the state’s insurer of last resort. Prior to the creation of Louisiana Citizens, all losses incurred by the Fair and Coastal Plans were paid pro-rata by insurance companies based on their percentage of business. Prior law did not permit insurance companies to pass on the losses to policyholders, but the insurance companies could go to the Insurance Rating Commission for higher rates. At that time, however, the Insurance Rating Commission carefully scrutinized all proposed rate increases and actually approved very few rate increases. After Louisiana Citizens was created, all losses were directly passed on to policyholders as surcharges, effectively taking insurance companies off the hook.
Commissioner Wooley did exactly what the firm wanted him to do- i.e., develop his chips with the insurance industry under the guise of stabilizing the insurance market and attracting new insurers to the state. Based on the firm’strack record with Morial, Teamer, and later Coulon, plaintiff objected to the hiring of Commissioner Wooley in discussions with Brooks, Laizer, and O’Brien on the grounds that the firm was apparently intending to use the same subterfuge as it had with Morial, Teamer and Coulon in order to allow them to work behind the scenes on prohibited matters.
Commissioner Wooley ran the Department of Insurance until he announced that he would resign as of February 15, 2006. Just before Commissioner Wooley left office in February 2006, Allstate approached Commissioner Wooley and alerted him that the company wanted to drop wind and hail coverage for its homeowners’ insurance customers in coastal parishes across Louisiana by means of a unilateral endorsement to the policies, rather than through outright cancellation or nonrenewal of the policies. Immediately after leaving office, Wooleygot together with Allstate and agreed, despite his two-year prohibition, to assist Allstate in avoiding regulatory sanction for violating Louisiana’s consumer protection laws that prevent insurers from dropping customers of three years or more without specific cause. With Wooley directing traffic in the background, and other firm attorneys fronting the representation, the firm proceeded to advise the Louisiana Department of Insurance in July 2006 that Allstate intended to cancel its wind and hail coverage on approximately 30,000 policyholders in 18 coastal parishes. Simultaneously, Allstate announced record second quarter profits of $1.2 billion.
After the Louisiana Department of Insurance threatened to take Allstate to court to prevent Allstate from unlawfully dropping wind and hail coverage on 30,000 homeowners in 18 coastal parishes, the firm represented Allstate in connection with its controversial drive-by inspection process as a way to cancel policyholders in storm-prone areas. Allstate performed drive-by inspections of roughly 40,000 homes in the New Orleans area in an inspection process that took less than one minute per home. However, many customers who received cancellation letters complained to the Louisiana Department of Insurance that their homes had already been or were in the process of being repaired and that their coverage should not have been terminated. In the spring of 2007, the Louisiana Department of Insurance forced Allstate to scrap this drive by inspection process that resulted in several thousand homeowners getting their policies canceled. Meanwhile, Allstate reported a record $5 billion profit for 2006 and sponsored the Sugar Bowl, the area’s premier sporting event, all while using Wooley and the firm to unlawfully dump its customers in the area.
During his two-year prohibition, Wooley directed an army of lawyers at the firm looking for technicalities to allow Allstate to drop long-standing customers in storm-prone areas of the state, violating both the letter and the spirit of Louisiana’s consumer protection laws. Most recently, Allstate, with the guidance and counsel of the firm, began reclassifying some long time customers as new ones so that their wind and hail coverage could be dropped. In early 2008, Louisiana consumers began complaining to the Louisiana Department of Insurance that their wind and hail coverage was dropped as a result of an administrative switch from Allstate Insurance Company to Allstate Indemnity Company on a good credit discount that cost them their all important coverage against hurricanes. The Louisiana Department of Insurance fined Allstate the maximum penalty of $250,000 for its three attempts (during Wooley’s two year prohibition) to circumvent Louisiana’s consumer protection law. Of course, a $250,000 fine to a company that reports a $5 billion annual profit after massive storm losses is negligible and constitutes an inexpensive cost of doing business.
Under the current insurance system, private insurers collect premiums from customers in a reserve fund and invest the money until a disaster strikes. Because the biggest storms can cost much more than a company might have in its financial reserves, many companies choose to buy reinsurance (i.e., insurance that will cover claims above a certain level). In 2004, Allstate did not purchase private reinsurance and suffered heavy losses when four storms struck Florida. In 2005, when Hurricanes Katrina and Rita hit Louisiana, Allstate bought reinsurance in seven states, but not in Louisiana. That misplaced bet cost Allstate more than $3 billion in claims in the state, even though as noted above, Allstate reported record profits in 2006. As a result of Allstate’s reinsurance misjudgments, Allstate formed a fronting non-profit group called ProtectingAmerica.org to lobby for government-sponsored catastrophe funds and to promote the concept in catastrophe-prone areas.
A catastrophe fund would cap the exposure that private insurance companies face on potential hurricane losses in Louisiana because a government-backed fund, whether state or federal, would step in to cover claims beyond a certain level, reducing the need for insurance companies to buy reinsurance. According to a study released by the Louisiana Recovery Authority in March 2007, the state would take over a portion of residential claims from a hurricane when they reach $1.25 billion in the event the state created a state-run catastrophe fund. The study by Paragon Strategic Solutions was intended to provide a blueprint for how such a fund might be structured. In its study, Paragon updated a 2003 study that it performed for then-Commissioner Wooley.
When Wooley left office and joined the firm, he was retained by Protecting Armerica.org to lobby for a catastrophe fund. Wooley’s services for Protecting America.org were primarily in Louisiana and included legislativeand executive branch lobbying, drafting of legislation, speaking at conferences and trade shows, and coalition building.
As noted above, the firm had ignored plaintiffs insistence that Wooley and/or the firm obtain an Ethics Board opinion that the lobbying services performed by him on behalf of insurance……
The complaint continues
Because ProtectingAmerica.org was a fronting organization for Allstate, Wooley’s actions were a classic example of a regulator leaving government service to impermissibly lobby for one of the companies he previously regulated on the very issue he was working on when he left office. In fact, Wooley thumbed his nose at the Board of Ethics’ prior advisory opinion and publicly claimed that he could legally lobby the legislature because it was a separate branch of government. Not only did Wooleyviolate the Ethics Board’s ruling on legislative lobbying, he also engaged in improper executive branch lobbying on behalf of Allstate and ProtectingAmerica.org.
Of course, Wooley’s and the firm’s efforts to promote catastrophe funds while simultaneously canceling coastal policies in Louisiana were designed to protect Allstate’s profits and tracked similar efforts in other states. When Allstate began canceling its homeowner’s insurance policies in coastal areas ofNew York in 2006, insurance regulators charged that the company was trying to scare people into supporting the catastrophe funds. As a former regulator, Wooley was well aware that catastrophe funds shift the burden of catastrophe risk from insurance companies to taxpayers. The catastrophe funds dupe people into buying coverage twice. Customers think they have bought insurance, but when a disaster strikes, they discover that their policies did not really include the cost of reinsurance. They now have to worry about paying for reinsurance through surcharges for the rest of their lives
Finally George Dale was not left out of the complaint as Mr Perdigao strongly implies the fix was in with him as well on page 50 of the complaint:
In January 2008, the firm announced that it was hiring former Mississippi Insurance Commissioner George Dale. Accordingly, the wrongful conduct exhibited in connection with the employment of Morial, Teamer, Coulon and Wooleywas open-ended and projected into the future with a great possibility of repetition.
This complaint, if borne out, is nothing short of sensational. Slabbed will be here to cover all the developments in this case.
Here is an excellent blog entry on the criminal side of this litigation.