Broward insurance firm-turned-‘Ponzi scheme’ cost Florida, policyholders $100 million

By Dan Christensen, FloridaBulldog.org 

Broward entrepreneur Philip Morgaman aboard his luxury yacht, Golden Rule, before AequiCap Insurance Company was declared insolvent in 2011.

The final act in the little-noticed liquidation of a Fort Lauderdale-based insurance company that regulators say evolved into a “Ponzi scheme” that cost Florida and its policyholders more than $100 million is set to unfold in court this spring.

The Florida Department of Financial Services’ fraud case is an offshoot of its receivership of AequiCap, the property and casualty insurance company the state was forced to take over – and pay claims for – when it went belly up in 2011. It was one of Florida’s largest insurance company failures.

AequiCap’s chairman and principal owner was South Florida insurance, taxi and private school entrepreneur Philip Morgaman, a longtime business partner of Broward Yellow Cab kingpin Jesse Gaddis. State court filings say Morgaman milked big money from AequiCap, using the insurer’s funds to provide him with “a form of self-insurance for his business ventures unaffiliated with AequiCap as well as to perpetuate his extravagant lifestyle.”

Today, the state is seeking $1.2 million in damages from four family trusts owned or controlled by Morgaman, and Gulf Coast Transportation. Gulf Coast, based in Broward, operates a fleet of taxis, luxury sedans and shuttle buses on Florida’s West Coast and is owned 50-50 by the Morgaman family and Michael Gaddis, Jesse’s son. Michael Gaddis, a Gulf Coast director, is also a defendant.

Morgaman and son Justin Morgaman, Gulf Coast’s vice president, were recently dismissed as individual defendants due to a previous settlement of a broader lawsuit in the receivership case filed in February 2015, but the trusts remain on the line. Philip Morgaman said in an interview that the defendants have offered to pay $600,000 to settle the lawsuit, but the state won’t accept it.

Leon County Circuit Judge Karen Gievers

Trial is set for June 5 before Leon County Circuit Judge Karen Gievers.

Michael Gaddis did not respond to requests for comment sought over several days.

Fort Lauderdale attorney David Ferguson, who represents the Morgamans, Gaddis and Gulf Coast, filed court papers Monday asking the judge to toss the case out of court saying, among other things, that the state filed its claim well after the five year statute of limitations was up.

“I believe that the (state) has got serious standing and statute of limitation issues and the amount of money they’re claiming is significantly more than they’d be due if they didn’t have this problem,” Ferguson said in an interview.

Also in an interview, Philip Morgaman denied any wrongdoing by himself, his son or Michael Gaddis. He called the state’s case “flimsy” and said it fails to note that he funneled “tens of millions of dollars” into AequiCap in an unsuccessful attempt to save it.

‘We should have gotten a thank you’

“I wore a white hat here. I liquidated most of what I owed, including the schools company I loved and founded in an attempt to turn AequiCap around,” he said. “We paid a quarter of a billion dollars in claims…We should have gotten a thank you.”

The private schools company was for-profit Meritas LLC, which Morgaman started in 2005 with significant backing from private investors. According to a report by the Florida Office of Insurance Regulation, Aequicap invested more than $10 million in Meritas. AequiCap liquidated those holdings in April 2009 as its financial troubles were beginning.

Philip Morgaman and Jesse Gaddis founded AequiCap in 1985. The company specialized in providing commercial auto liability, workers compensation, and public livery insurance in Florida and other states in the southeast. Morgaman said he bought Gaddis out in 1998.

AequiCap’s collapse began in 2009 when the insurer began experiencing what the state’s complaint says were substantial financial problems, including “serious cash flow issues.” The company’s response was to delay and refuse to pay debts and “to disguise and hide” its deteriorating condition from both state regulators and its creditors, the complaint says.

The Aequicap Building in Fort Lauderdale

One of AequiCap’s biggest liability insurance customers was Gulf Coast, which the complaint says was run by Justin Morgaman and Michael Gaddis. The suit alleges the Morgamans had “dual and conflicting roles” at those companies that allowed them to siphon off AequiCap’s assets to benefit Gulf Coast.

In turn, Gulf Coast sent big money back to Morgaman.

“At one point, Gulf Coast distributed $38,000 to [Philip Morgaman] each month,” says the state’s 19-page complaint filed in July. That money, plus payouts for dividends, profit distributions, loan repayments, consulting fees “and all other guises paid to Phillip [sic], Justin and Gulf Coast shareholders were fraudulently transferred assets of Gulf Coast…and were to the detriment of the legitimate creditors.”

To make matters worse for AequiCap, the lawsuit says, the Morgamans also “failed to direct or cause” Gulf Coast to pay its debts to AequiCap or to collect funds Gold Coast owed AequiCap.

AequiCap’s board was a “mere rubber stamp” that gave “total control” to Morgaman “for his personal benefit and the benefit of his friends, affiliates and other insiders,” court papers say.

“Justin and [Michael] Gaddis breached their fiduciary duties to the creditors of Gulf Coast by participating in self-dealing and failing to adequately manage the corporate affairs of Gulf Coast” by not paying Gulf Coast’s debts, making improper loans and allowing improper cash transfers to shareholders, insiders and affiliates of Gulf Coast, the lawsuit says.

State has ‘misrepresented’

Morgaman, who lives in Boca Raton, said it was not true that he and Justin had conflicting roles. “I can see why they say that, but it’s misrepresented and taken out of context,” he said.

Earlier, in the related lawsuit that was settled, the state accused Morgaman of having Aequicap subsidiaries and affiliates distribute cash and benefits to him in lieu of “appropriately transferring profits and cash flow to AequiCap.”

“By way of example, [Philip Morgaman] had $5,900 per month lease payments plus the cost of insurance and a private driver for a Maybach automobile transferred so as to provide him with lavish benefits, all at the expense of and to the detriment of the creditors and policyholders of Aequicap,” court papers say. Maybach is an ultra-luxury brand of Mercedes-Benz.

As AequiCap’s position deteriorated its A.M. Best rating for financial strength fell to “weak.” In response, the Morgamans, company president Mark Stephenson and vice president and general counsel Matthew Jones began issuing cut-rate, risky policies to bring in new customers and dollars “to meet the worsening cash flow issues,” court papers say.

AequiCap Insurance Company logo

“This led to the creation of a form of a Ponzi scheme – AequiCap used its current premium revenues in order to pay past-due expenses, while ignoring the true financial condition of AequiCap. This action further substantially contributed to the losses sustained by the receiver in the liquidation process,” court papers say.

The Department of Financial Services, however, never proved its Ponzi scheme allegation in court.

As of Jan. 30, 2017, a total of 3,233 claims were filed in the AequiCap receivership. Of those claims, only about 510 were evaluated by the receiver under state priority rules. Those claimants include the Florida Insurance Guaranty Association and the Florida Worker’s Compensation Guaranty Association, which paid numerous claims in the immediate aftermath of AequiCap’s collapse.

“These 510 claimants filed claims totaling in excess of $117 million; the amount recommended [for payment] on these claims is approximately $22 million,” said Department of Financial Services (DFS) spokeswoman Ashley Carr.

Additional claims, such as those involving large court judgments, are also expected to receive distributions on a pro rata basis, but many claims will never be paid.

Despite AequiCap’s huge losses and the state’s misconduct allegations, the Department of Financial Services, overseen by Florida’s Chief Financial Officer Jeff Atwater, a Republican, agreed in October 2015 to a broad settlement with the Morgamans and other AequiCap directors, officers and employees that didn’t cost any of them a dime. The $10-million settlement, including $300,000 to cover defense costs, was paid entirely by Aequicap’s directors’ and officers’ insurance policy.

State records show that in 2002 Morgaman was a major contributor to both the Republican Party of Florida – $45,000 – and The Coalition to Protect Florida – $25,000 – a political committee set up by Republican State Sen. John Thrasher to oppose a proposed constitutional amendment opposed by then-Gov. Jeb Bush to limit the size of public school classes. Voters approved the amendment.

DFS’s 2015 AequiCap settlement, however, left unresolved a single count for claims of fraudulent transfers against Gulf Coast that is the basis for the ongoing lawsuit.

Why Florida settled most of case

DFS spokeswoman Carr said Florida settled to obtain “a guaranteed recovery for an estate with overwhelming losses – over $100 million” and to avoid “lengthy complex litigation” that would have eaten up most of the insurance policy’s proceeds.

“The individuals did not appear to be collectible, and the financials of Phil Morgaman showed him to have huge gambling losses and other financial problems,” Carr said.

Carr declined, however, to explain why the state considered Morgaman uncollectible when he sold his luxury Feadship yacht, Golden Rule, for about $5 million around the same time the state put AequiCap into receivership. Likewise, she did not respond to a question about whether the state believes assets it might be owed are stashed offshore.

Morgaman declined to discuss his personal finances or his alleged gambling losses. He did say, however, that he got no money when he sold his 127-foot yacht because there was a $5 million lien on it.

Morgaman contends the state has been overly aggressive, making assertions that are untrue just to try to collect more money.

“At the end of the day, everyone of us has had to live with having to explain this over and over and over again when there was nothing here in the first place,” Morgaman said. “The fact is the receiver will make any claim they can to make a collection.”

Despite the Department of Financial Services’ conclusion that Aequicap became a Ponzi scheme, it did not refer the case to the Florida Department of Law Enforcement for further investigation.

“There was insufficient evidence to refer the case for criminal prosecution,” Carr said, without elaborating.

Morgaman can no longer operate an insurance company in Florida, Carr said. He remains, however, a member in good standing with the Florida Bar, which admitted him to practice law in 1980.

Today, Morgaman serves as chairman and CEO of the Deerfield Beach-based nonprofit United Schools Association, which, according to its website, operates residential programs for international students at U.S. schools with which it partners.

Until recently Morgaman operated a pair of charter schools, the Florida Virtual Academies of Broward and Palm Beach, and also served as chairman of the South Florida Virtual Charter School Board. Both of those virtual academies were shuttered last year in the wake of critical reports by the Broward and Palm Beach school boards.

Broward schools auditors found “numerous deficiencies” requiring “immediate action to improve” academic performance. There were likewise concerns about ethical violations amid allegations that Morgaman, as board chair, had engaged in “related party transactions” with his United Schools Association. In July, Palm Beach investigators substantiated similar ethical breaches.

Killer’s wife set to inherit victim’s money; “a travesty,” Broward prosector says

By Dan Christensen, BrowardBulldog.org 

Convicted killer Robert Burkell Photo: Broward Sheriff's Office

Convicted killer Robert Burkell Photo: Broward Sheriff’s Office

Ten years ago, killer Robert Burkell bludgeoned to death his 81-year-old tenant Charles Bertheas, cracking open his aged skull like an eggshell, according to police. The motive: money.

Today, Burkell is in prison for life. But his wife Susan, a Lauderhill resident who authorities say did not participate in the slaying but knew what was happening, is set to inherit more than $214,000 of the victim’s money.

Bertheas’s eight elderly brothers and sisters, who live in France, won’t see a dime. Charles Bertheas designated the Burkells as co-beneficiaries on his accounts at the Bank of America.

Florida law blocks convicted killers like Robert Burkell from receiving property or other benefits because of their victim’s death. The law, however, does not extend to their spouses or consider the murderous circumstances of their crime.

“This is a travesty,” said Broward Assistant State Attorney Peter Holden. “She’s benefiting from her husband’s criminal offense…It stinks.”

“We couldn’t prove she was involved in the murder,” said BSO Detective Tim Duggan. “The only thing we could say was there was no way that she could not have known it was going on. She left moments before it happened.

Mary Susan Burkell, 63, says prosecutors and police have it completely wrong. Her husband was mistakenly convicted of Bertheas’s murder, she said, and now Holden and Duggan are falsely slandering her.

“They said I knew what was happening? What a pair. What a pair,” she said. “No. That’s not correct. They have fantasized over this for so long. I don’t know how they sleep at night.”

Charles Bertheas, whose skull was crushed

Charles Bertheas, whose skull was crushed

The Florida Department of Financial Services, which has been holding Bertheas’s money, awarded it to Susan Burkell in a final order dated March 21. With the help of a Tampa private investigation agency, SRS International, she filed a claim for the property last August after the department rejected a claim by the dead man’s brother. SRS stands to collect a 20 percent commission.

Marc Bertheas, who is 80 and lives in the Paris suburb of Saint Denis, opposed the award and sought an extension of the state’s 30-day time limit to file an appeal. In a letter to the department postmarked April 19, he stated he needed time to find a U.S. lawyer, explaining that he was not fluent in English and had special medical conditions that limit his ability to communicate with legal counsel.

The Financial Services department rejected Bertheas’s request. The reason: It did not receive his letter until April 23 – the day after the deadline.

“Unfortunately, the referenced time period has expired and the department has taken steps to disburse the underlying unclaimed property funds in accordance with the final order,” Financial Services attorney Kate Pingolt Cotner informed Marc Bertheas in an April 25 letter.

Widower Charles Bertheas died Nov. 23, 2003 on the floor of the converted family room he rented from the Burkells in their four-bedroom home at 9107 NW 72 Court, Tamarac.

9107 NW 72 Court, Tamarac, the scene of the crime

9107 NW 72 Court, Tamarac, the scene of the crime

Robert Burkell, now 64, summoned police that afternoon after reportedly finding the body. Bertheas had been dead for at least several hours.

Burkell told police he’d last seen Bertheas the night before when they had dinner together at a bar in Sawgrass Mills. He said he thought Bertheas might have hit his head in a drunken fall.

But “a large pool of blood” around the body, and a detective’s observation of “considerable trauma to the victim’s face and head” raised suspicion, court records say. The medical examiner’s office later classified the death as a homicide and attributed it to blunt trauma. The weapon used by the killer to crush Bertheas’s head was never identified.

A motive soon became apparent when it was found that Burkell had “forged a $10,000 check in Mr. Bertheas’s name” the night before the murder, according to Duggan. It wasn’t until later that police learned Bertheas had designated Robert and Susan Burkell as the beneficiaries of accounts containing $280,000 in savings at the time of his death, records say. That included proceeds from the sale of the condo he once shared with his late wife.

No signs of forced entry or a struggle were found at the home, and no valuables were missing. The victim’s DNA was discovered in bloodstains on a bath mat and counter top in the master bath – a location Susan Burkell later testified only she and her husband used. Likewise, two bare sole footprints found in dried blood adjacent to the body were matched to Robert Burkell, the records say.

Burkell was arrested two days before Christmas. It wasn’t his first arrest for murder.

Detective Duggan said that in 1986 Burkell confessed to bludgeoning William Yalden, a Geneva, N.Y. businessman whose body was later found in an Ohio cornfield, “in the exact same manner as he killed Bertheas.” Burkell’s confession was thrown out prior to trial, however, because of a Miranada rights warning issue, Duggan said.

“He definitely got away with that one,” said Duggan.

Marc Bertheas

Marc Bertheas

Things turned out differently for Burkell 20 years later in Florida. While Burkell did not confess to killing Bertheas, he was nevertheless convicted of first-degree murder and sentenced to life in prison. His conviction was upheld on appeal in 2008.

The money in Bertheas’s bank accounts was turned over to the state as unclaimed property in 2005. In 2011, Marc Bertheas tried to claim it, but his claim was denied because he was not a beneficiary.

Burkell’s murder conviction meant he had no longer had a legal claim to Bertheas’ money. Florida law treats killers who stand to inherit from their victims as if they died first.

“Consequently, Susan Burkell is the only beneficiary who is legally permitted to receive the unclaimed property funds at issue,” the Department of Financial Services decided.

Robert Burkell, who has three children by his wife of 40 years, is currently being held at the Broward County Jail while awaiting a ruling on his lawyer’s motion for a new trial based on ineffective assistance of trial counsel. The motion is pending before Broward Circuit Judge Raag Singhal.

On the day she was interviewed, Susan Burkell had not received any payout from the state. How much she will ultimately get is unclear.

For reasons that are not made clear in state records, the $280,000 that was in Bertheas’s accounts at the time of his death had dwindled to $214,221.86 by 2008. Detective Duggan said he’s heard that amount has dwindled further – eaten away by attorney fees.

 

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