Garamendi Acts Against Insurer Linked to BCCI : Regulators: The state fears that Tri-Star funds will be transferred to other operations owned by the alleged Saudi front man for the besieged bank.


The U.S. insurance holdings of Ghaith Pharaon, the alleged Saudi front man for the rogue Bank of Credit & Commerce International, are coming under intense regulatory scrutiny as officials fear that he may transfer their assets to other operations.

California Insurance Commissioner John Garamendi announced Wednesday that he has issued an order prohibiting Tri-Star Insurance Co. in Studio City from writing most new business and banned it from engaging in any transactions with its parent company or affiliates.

“We have moved quickly to avoid the risk of Tri-Star’s capital flowing to Ghaith Pharaon’s empire and to protect the innocent policyholders who would have unwittingly become entangled in the scandalous BCCI web,” Garamendi said in a statement.


Garamendi’s office said Tri-Star’s “assets were overstated, claims were mishandled and claim files were in disarray.” Tri-Star also had fallen short of minimum capital requirements, regulators said. Its surplus of $1.48 million as of May was about $1 million below the minimum.

The Insurance Department will send a team of examiners into Tri-Star this week to analyze its assets, reserves and insurance claims processing operation and to study its relationship with Pharaon and his holding companies, Garamendi said.

“We ought to be able to quickly analyze it,” Garamendi said in an interview. “The assets and liabilities are limited.”

Tri-Star, which provides insurance for gas stations, automobile dealers and other commercial enterprises, has suffered substantial losses in recent years. The firm has been owned by Pharaon through a chain of holding companies since 1987.

The Federal Reserve is seeking to ban Pharaon from the U.S. banking industry. The Fed has accused Pharaon of secretly purchasing Encino-based Independence Bank on behalf of BCCI, a Luxembourg-based banking group allegedly involved in a worldwide fraud and in financing everything from terrorists to drug cartels.

Tri-Star’s largest single depository was Independence, according to Best’s Insurance Reports.

The small insurer had about $11 million in assets in May and 1,364 policyholders last month. Bill Schulz, a spokesman for the Insurance Department, said the firm had inflated its assets, including the value of its Studio City headquarters.

“The company was in a difficult financial situation,” Schulz said, “and we were concerned that the money not be sent upstream to the parent company.”

Meanwhile, Georgia regulators said Wednesday that they have begun an examination of American Specialty Insurance Co., the Atlanta-based parent corporation of Tri-Star and another Pharaon-owned property and casualty company.

“We sent an examiner into American Specialty two weeks ago, and we are currently checking out their financial condition,” said Wayne Whitaker, spokesman for the Georgia insurance commissioner. “They were showing reduced profitability.”

Officials in California and Georgia are concerned that Pharaon may transfer assets from his insurance network to other troubled businesses, in part because he is said to owe hundreds of millions of dollars to BCCI.

“We are not going to let any of these company assets be drained off by outside interests,” Whitaker said.

American Specialty had assets as of Dec. 31, 1990, of nearly $13 million and $9.4 million in liabilities, Whitaker said. About $3.35 million worth of those assets were Tri-Star stock, he said.

One Pharaon-owned insurance company--American Southern Insurance Co. in Atlanta--is considered to be in good financial condition but it will soon be sold to an unrelated company for $33 million, Whitaker said. He said his department was “keeping an eye” on it nevertheless.

“Any time you would have someone who owns an insurance company licensed in Georgia who is involved in allegations of financial wrongdoing, we would be concerned,” Whitaker said.

Pharaon has denied the charge that he bought Independence on BCCI’s behalf in order to circumvent U.S. regulators, who would have never allowed the scandal-plagued institution to control a bank here. He and his lawyer, Richard Lawler in New York, could not be reached for comment Wednesday.

Tri-Star President Noshir M. Lakdawalla said Wednesday that his firm had stopped writing new business March 31 because the company was having financial difficulties.

“It was just not profitable,” Lakdawalla said. “The board finally decided there was no point in continuing like this.” He said Tri-Star wrote only $4 million of new business in 1990.

Pharaon, the son of an adviser to the ruling family in Saudi Arabia, has had a long presence in the United States. Through InterRedec, a holding company, Pharaon invested in hotels, construction, real estate, minerals and architectural concerns across the country.

His company encountered severe financial problems in the mid-1980s after the crash in the global oil market, and he was forced to renegotiate his huge debt. The BCCI scandal may have placed additional pressure on his financial operations.

Pharaon’s interest in the insurance business had attracted the attention of some industry executives throughout Southern California, leaving some of them puzzled as to why he acquired several tiny losers.

“Why did Pharaon ever get into insurance?,” one of them asked. “What did it ever do for him?”

Pharaon’s U.S. Insurance Holdings The insurance holdings of Ghaith Pharaon, the wealthy Saudi Arabian businessman alleged to be a front man for the Bank of Credit Commerce International, have drawn the attention of regulators in several states. Here is the structure of his insurance holdings.

Interredec Inc., Atlanta-based insurance holding company River oaks Inc., New York American Southern Insurance Co., Atlanta American Safety Insurance Co., Atlanta American Specialty insurance co., Atlanta Ellis Brokerage Insurance Services, Studio City Ellis Insurance Services Inc., Atlanta Ellis Insurance Services, N.W., Inc., Seattle River Oaks Premium Finance, Studio City Tri-Star Insurance Co., Studio City

Source: California Department of Insurance

Tri-Star Insurance at a Glance Location: Studio City

Business: Property and casualty insurance, specializing in gas stations and car dealers.

President: Noshir Lakdawalla

No. of policyholders: 1,364**

Assets: $11 million*

Employees: 13

Owner: Ghaith Pharaon

Parent company: American Specialty Insurance Co.

Founded: Aug. 16, 1889

* May, 1991

** July, 1991

Source: California Department of Insurance