Former Exec Keating Pleads Guilty to Scamming Allied World Insurance for $1.5M

A former insurance executive has pleaded guilty to defrauding his former employer, Allied World Insurance Co., of $1.5 million in a scheme involving a shell company, bogus invoices, and vendor kickbacks.

James Keating of Paoli, Pennsylvania on January 30 pleaded guilty in federal court in New Haven, Connecticut, to one count of wire fraud, which carries a maximum term of imprisonment of 20 years, according to Vanessa Roberts Avery, US Attorney for the District of Connecticut. According to the plea agreement, Keating will pay restitution of $1,226,603.97, which represents the loss to Allied World of $1,446,491.95, less $219,887.98 that he previously repaid as part of a civil judgment.

A January indictment explains how Keating scammed Allied World.

Between 2014 and July 2019, Keating was an assistant vice president at Allied World National Insurance Co. assigned to handle claims on surety bonds issued by Allied World. Keating continued the same surety bond claims work for Allied World’s affiliate Crum & Forster (through its subsidiary United States Fire Insurance Co.) from July 2019 until about January 2021. In particular, he continued to handle claims on the pre-existing Allied World surety bonds. He worked from Allied World offices in Pennsylvania, but all surety bond claims were handled through Allied World’s offices in Farmington, Connecticut.

According to court documents, between 2017 and 2021, Keating defrauded Allied World in two ways.

First, he billed Allied World for surety completion work that was never performed and was unnecessary and took the proceeds for himself. To carry out this part of the scheme, Keating created a shell company, American Construction & Industrial LLC, under the assumed name of Robert Peterson. He did not inform Allied World that American Construction was his alter ego.

Keating had American Construction send bogus invoices to Allied World. He repeatedly uploaded claims into Allied World’s system purporting to show that American Construction had performed work on particular claims, when in fact American Construction had not performed such work, the work was not necessary, and the work was within Keating’s own employment obligations.

Allied World paid these bogus invoices — on more than 50 occasions – and the money was deposited into bank accounts controlled by Keating who then used it for his own enrichment.

Kickbacks

The second way Keating defrauded Allied World was by soliciting kickbacks from vendors who performed work on Allied World claims handled by Keating, and then failing to disclose those kickbacks to Allied World. To carry out this part of the scheme, Keating utilized another shell company, Surety Risk Solutions, LLC, also known as SRS and SR5 LLC. SR5 was solely owned by Keating.

SR5 entered into arrangements with Allied World vendors under which the vendors would pay a percentage of their revenue from Allied World work to SR5, typically between 7% and 10%. Keating sometimes referred to these kickbacks as “finder’s fees” or “consulting fees,” the indictment says.

Additionally, Keating convinced these vendors to utilize Kodiak Asset Recovery LLC, a company also owned by Keating, to do online asset searches and then “vastly overcharge” Allied World for that service, again without telling Allied World about his ownership interest in Kodiak.

According to US Attorney Avery, Keating profited nearly $1 million through American Construction & Industrial LLC, more than $350,000 in kickbacks through Surety Risk Solutions, and nearly $125,000 through Kodiak Asset Recovery.

Keating, an attorney, was disbarred in January.

He was released on a $100,000 bond.

The case was investigated by the Federal Bureau of Investigation and prosecuted by Assistant U.S. Attorney David E. Novick.

Allied World Assurance Company Holdings, Ltd, through its subsidiaries, is a global provider of insurance and reinsurance. It a subsidiary of Fairfax Financial Holdings Ltd.