State Insurance Dept. Seizes 3 Bonding Firms

Agents of the state Insurance Department seized three Orange County companies Tuesday, alleging the interrelated businesses were marketing worthless construction project bonds to contractors throughout the state.

The companies, which have collected about $2.5 million in premiums since 1991, are owned by American Diversified Insurance Co., an offshore insurance carrier that is licensed by the Caribbean country of Antigua and Barbuda but not by California authorities.

The operators of American Diversified and the three Orange County bonding businesses, George Jacobs of Newport Beach and Thomas Ashley of Santa Ana, currently are on trial in U.S. District Court in Santa Ana on charges of conspiracy and mail fraud in an unrelated bond counterfeiting case. The case has gone to the jury, which now is deliberating.

A California Department of Insurance spokeswoman said Tuesday that state investigators have determined that American Diversified does not have the financial ability to honor the hundreds of construction project completion bonds its three Newport Beach-based subsidiaries have issued over the years.

The bonds cover projects valued at more than $100 million. A construction surety bond is supposed to insure a project against the contractor’s inability to complete the job.

Many of the bonds sold by the American Diversified companies covered government projects involving things such as road and park repair and construction. Miller said agents still are reviewing company records and do not yet know how many times the firms have failed to honor bonds they issued.

Shuttered by the 10:30 a.m. raid were the Newport Beach offices of Global Marketing Corp., Republic Surety Insurance Agency Inc. and American Diversified Financial Services. All three were located in an office complex on Newport Center Drive. The Newport Center business complex is largely occupied by construction companies.

Jacobs could not be contacted Tuesday and his attorney declined to comment. A woman who identified herself as Ashley’s wife said in a brief telephone interview that Ashley was unavailable for comment.

Department of Insurance investigators say the same two men are the operating officers of American Diversified Insurance. The company uses a post office box in Washington as its U.S. address, but is headquartered in the Caribbean, where insurance regulations are often less stringent than in the U.S.

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Offshore insurers were a major problem in California in the early 1990s, selling everything from auto liability to life and health coverage that was generally worthless.

“We cleaned house in the early ‘90s,” said Insurance Department spokeswoman Candysse Miller. The department closed down the California operations of dozens of offshore operations from 1990 to 1993. Since then there have been few problems, she said, adding that the American Diversified situation could either be a hangover from the early part of the decade or an early sign that offshore operations are about to stage a comeback.

“Sometimes with these things, if they’re not in the news for awhile then people figure we’ve forgotten about them and the same old scams start up again,” she said.

In the federal case, the two men are charged with counterfeiting and selling $500,000 worth of construction bonds covering projects valued at $15 million. The bonds were allegedly issued in the name of a legitimate insurer that had no knowledge of them, Assistant U.S. Atty. Robert Raskin said.

The federal indictment alleges that Jacobs and Ashley sold the bonds from late 1990 through mid-1992, operating in Irvine, first as Federated Bonding and later as Federated Bonds and Insurance Co. Both of those businesses have since closed.