Houston Trial Lawyer Blog : Houston Business Litigation Lawyer & Attorney : Arnold & Itkin Law Firm : Personal Injury, Wrongful Death, Accident Claims

In a step that has securities attorneys and law experts all praise for the Securities and Exchange Commission, former Countrywide Financial Corp. chief executive Angelo Mozilo has been charged with securities fraud.

The SEC has charged Mozilo, former chief operating officer David Sambol, and former chief financial officer Eric Sieracki with misleading investors about risks the company took to increase its market share. The three have been accused of falsely telling investors Countrywide Financial avoided underwriting risky loans. According to Robert Khuzami, the SEC’s enforcement director, Countrywide Financial promoted its image as a company that used “high underwriting standards” and was engaged in underwriting prime quality mortgages. However, behind the scenes, the company functioned recklessly, taking on high risks.  

According to the SEC, Mozilo also made $140 million selling Countrywide financial shares around the same time he, in email messages, referred to the company’s loan products as “toxic “ and “poison”. The agency, which cited these emails, says they proved Mozilo mislead investors about the company’s risky lending practices.  Mozilo has been charged with insider trading, because he sold Countrywide stock based on “non public information”.

The civil suit filed by the SEC is one of the most important filed against people involved in the mortgage crisis. Countrywide was the country’s largest mortgage lender and was heavily engaged in offering housing loans to high risk borrowers.

The company also faces a class action lawsuit filed by several New York City pension funds that have lost tens of millions of dollars because of the company's recklessness. 

The SEC, in recent years, has seen its reputation erode as a result of the financial crisis. It has been heavily criticized by securities attorneys for its failure to enforce federal securities laws. However, the agency, under new leadership, has been embarking on a campaign to clear its reputation and add more bite to its enforcement actions.

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Homeowners across the country and especially in the Gulf Coast region can look forward to a long and tough hurricane season. The reason? Homeowners are finding it harder to hold on to their hurricane insurance policies.  

Insurers across the U.S. are raising premiums and dropping coverage to limit their exposure to risks. As a result, homeowners are finding that insurance is not only more expensive, but also more difficult to get. According to the Insurance Information Institute, homeowner policy premiums have risen by 3 percent across the country. The increase is even greater in the Gulf Coast region where the impact of hurricanes tends to be maximized.

• Last year, state Farm Insurance Company and AllState Corp raised premiums in Texas, blaming a high number of hurricane insurance claims as the result of Gustav and Ike, for the increase.
• llinois-based AllState has also raised deductibles and stopped offering coverage in some coastal areas.
• State Farm Florida could soon pull out of the Florida market because it was denied its request for a 47 percent rate increase.
• According to the Insurance Information Institute, insurers have seen record losses in Texas, Louisiana, Mississippi, and Florida over the past five years. In these areas, premiums have risen sharply. 

The National Oceanic and Atmospheric Administration has forecast between 9 and 15 named storms in 2009, including between 4 and 7 hurricanes. Of these hurricanes, between 1 and 3 will likely be major. However, forecasters are also predicting fewer hurricanes than last year. That should be good news for homeowners in hurricane-prone areas.  

Insurers Backing out of Hurricane Coverage

Insurers are blaming devastating financial losses from powerful hurricanes over the past five years, as well as the current turmoil in the financial markets, for impacting their earnings. Companies use financial investments as an additional source of income to fall back on when they have huge claims to pay out. Most of the major insurers have reported huge losses due to a decline investment income.  

For worried homeowners it does not really matter why an insurer would back out of an agreement. With insurers getting antsy about paying claims, and large numbers of Ike lawsuits still pending in the courts, we can expect more people to need insurance attorneys once November comes and the season ends.

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The Securities and Exchange Commission (SEC) is hoping Congress will increase its authority to seek civil penalties for investment fraud.

The Agency's Director of Enforcement, Robert Khuzami, testified before the Senate Banking Subcommittee on Securities and said the SEC would like to have increased authority to impose penalties on those who help defendants in violation of the Investment Advisers Act. Khuzami also told the Senate the agency needs the authority to subpoena people in civil cases across the country. This would save the agency travel expenses as well as staff resources, because duplicate depositions would be avoided.  Khuzami also pointed out several areas in the enforcement division that need more resources. The agency would benefit, he said, from hiring more trial lawyers, as well as chief operating officers to manage the division.  He also asked for more resources in the form of enhanced paralegal and administrative support, as well as better technological resources. 

Khuzami spoke to the panel in response to a report by the Government Accountability Office, which made suggestions for enhancements in SEC operations. The report analyzed agency operations and found there was a delay in cases and lowered settlement amounts in investment fraud cases, because of outdated penalty policies.  Under one of these policies agency enforcement staff was forced to obtain approval on a settlement before discussing penalties with public companies. That policy was revoked by SEC Chairman Mary Schapiro.

The agency has also suffered from a shortage of staffing and resources, resulting in a backlog of cases. Since the Bernard Madoff investment fraud was exposed last year, the SEC has come under increased pressure to enhance its operations. The appointment of Khuzami was one of the first moves Schapiro made to strengthen the division.

Attempts at SEC Improvement

Last month we discussed other moves that could strengthen the SEC and fine tune its ability to crack down on investment fraud much faster. These include the proposed formation of specialized teams to deal with specific frauds. The SEC is also proposing increased cooperation with criminal authorities and enhancing the management model currently in place at the agency. 

It may be a while before these proposed measures actually move toward becoming implemented at the agency, but securities attorneys, who have been critical of the agency's failures to crack down on investment fraud, believe any enhancements are worth the wait.

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An oil and gas royalty trial has begun in Texas and jurors will be asked to decide if the defendant owed the plaintiff royalties or if the plaintiffs committed fraud.

M & M Resources and Energy Land Resources filed a lawsuit against DSTJ Corp in 2006, claiming the former had not received 7 months of oil and gas royalties on an area well that was later shut down. The 21 oil and gas leases were assigned to DSTJ for a .5 percent royalty. Of those leases, four were located in a region of land owned by several residents of Jefferson County, known as Blackman Tract. DSTJ, according to court papers, conducted drilling operations at the well, which was functional from October 3rd until the time it was sealed by the Texas Railroad Commission in March 2004. M & M Resources allege that DSTJ failed to pay any royalties to them despite their drilling operations and production from the Quail well. According to the lawsuit, this failure constituted a default of obligations under the contract.

In response, DSTJ filed a countersuit which alleges M & M Resources was “engaged in shady dealings”. The countersuit also alleges M & M included “improper lease provisions” in the agreement, effectively preventing DSTJ from pooling the tract. DSTJ claims it had to shutdown the well due to the fraudulent inclusion of the lease provisions.

Jurors will now have to decide whether M & M Resources' alleged fraud led to the well being shutdown or if DSTJ should pay M & M Resources oil and gas royalties for the 7 months between October 2003 and March 2004, when the well was functioning.

Oil and Gas Companies May Deny Royalties

Denying royalties can be done in a number of ways. Oil and gas companies may report production levels that are much lower than the actual figures in order to avoid paying royalties. They may also inflate post production expenses to wriggle out of having to pay royalties.

Landowners in Texas who lease their lands for drilling have very few options when they are denied the royalty payments that are rightfully theirs. That is because, in Texas there is no single authority in in charge of ensuring that landowners receiver their dues. Due to the lack of such authority, owners are often at the mercy of oil and gas companies who may delay and deny royalty payments. In such cases, owners may have no other option but to consult with an oil and gas attorney to receive the royalties due to them.

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It is not just the ordinary American who needs insurance attorneys to help deal with disputes with insurance companies. A former Wisconsin Supreme Court Justice filed a lawsuit against AllState for its refusal to pay out a homeowner's policy claim.

Former Justice, William Bablitch, and his wife are suing the company for its refusal to pay $65,000 to cover damage to their Hawaii vacation home. According to the lawsuit, the home suffered water damage last year. When the Bablitches approached AllState to claim their policy benefits, they were denied their claims. The lawsuit alleges the company breached the contract in refusing to pay out the claim and is acting in bad faith. The company denies those charges and says it is acting reasonably in the claim.

What is an Insurance Policy?

An insurance policy is basically a contract between the customer, who is the insured party, and the insurer or insurance company. This contract defines the obligations of both parties. When either party fails in their duty to fulfill the obligations, they are said to be in breach of contract. When the insurer does not fulfill their obligations as specified under the contract, the insured party can file a lawsuit against the company for breach of contract.

Any policy holder who seeks to recover damages for breach of contract must prove that:

• The contract was in force at the time of the damage.
• They were fully in compliance with the terms of the contract.
• The insurance company breached the terms.

The policy holder here may be able to recover not only the policy benefits, but also any consequential damages that result from the breach of contract, including costs of the lawsuit. Attorneys frequently represent people who have been denied claims by their insurance company.

Hurricane Season is Here

With hurricane season in full swing and insurance companies still recovering from what has been one of the busiest and most disastrous hurricane eras in recent history, you can bet many insurers will delay and deny as many claims as they can get away with. The fact remains, if you submit a legitimate claim for damages caused to your home in a hurricane, it is your insurers responsibility to uphold their end of the agreement and pay out your claim.

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After Hurricane Rita caused $80,000 of damage to his home, Christopher Whiddon called Blake Borel Insurance to make a claim, only to find out he was no longer covered.

When Whiddon bought his home in May 2004 he financed the purchase through Bank One, which is now Chase Home Finance, and bought windstorm and fire insurance from Texas Select Lloyds Insurance Company via his insurer Blake Borel Insurance. Whiddon was under the impression that the payments for the windstorm and fire insurance would be escrowed.

According to the complaint, however, Whiddon's insurance expired in December of 2004 and was not renewed. He trusted Chase would maintain the coverage agreed upon and, because they did not, he was forced to pay for the repairs himself. This caused loss of and damage to Whiddon's credit and credit reputation. According to The Southeast Texas Record, "He also incurred interest and finance charges, experienced a diminished or reduced market value of his home, paid for repairs and remediation, incurred engineering and consulting fees and paid for temporary housing..."

Chase and Blake Borel have been accused of:

• violating the Texas Deceptive Trade Practices
• acting unconscionably
• breaking the Texas Business and Commerce Code
• unfair claim settlement practices
• misrepresenting an insurance policy
• unfair and deceptive acts
• common law fraud
• negligence
• breach of contract

With hurricane season here, it is important to make sure you have the coverage you need to protect your home and family. In the unfortunate case that your home is damaged in a windstorm, being able to depend on your insurer is essential in recovering from those damages. Unfortunately, there are cases in which the entities you thought were protecting you are taking advantage of you or simply falling down on the job. In this instance, an insurance attorney can help you understand your rights and make sure your claim is rightfully paid out.

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In the midst of an era of high hurricane activity, large insurance companies have pulled out of Florida, leaving small and "last resort" companies to insure all of highly hurricane-susceptible Florida. Many of these entities are severely underfunded, putting Florida in a dreadful financial situation as hurricane season approaches.

Florida's state mandated "last resort insurer", Citizens Property Insurance Corp., and its catastrophe funds are starved, and any small insurance company may not have the funds to payout if even one hurricane hits the Florida coast.

The Florida Hurricane Catastrophe Fund (CAT) which reinsures insurers, is also desperately underfunded. According to a CAT official, "The state was potentially on the hook for $28 billion last hurricane season but had access to only about $13 billion to reimburse insurers...The shortfall could be even bigger this year, up to $18 billion."

How will the Florida insurance mess unfold?

Ultimately, there is a good chance that after this hurricane season there will be many home owners that do not get paid in a timely manner, if they get paid at all.

Situations like these are part of the reason insurance companies dodge paying claims. With the risk of going into billions of dollars of debt, it is easier for insurers to delay or deny claims than to follow protocol and simply pay out legitimate claims.

With hurricane season well on its way, be sure you have the coverage you need. In the case that you must file a claim, hope that your insurer has the ability and is willing to get you the help you are entitled to. If that is not the case and your claim is denied or unreasonably delayed, be prepared to contact an insurance attorney who can assist you in obtaining your claims.

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Early this morning the Texas senate passed legislation that would replenish Texas' windstorm insurance fund. After Hurricane Ike this was a major priority for Gov. Rick Perry who urged the Senate to pass the legislation before hurricane season starts in June.

Texas' windstorm insurance fund provides storm insurance coverage for Texas coastal property owners through the Texas Windstorm Insurance Association (TWIA). The TWIA was created in 1971 after Hurricane Celia struck the coast and insurers stop providing their services in the area. TWIA is the only wind insurer for property owners in the 14 first-tier coastal counties in Texas. TWIA does not seek business, rather they are a "last resort" insurer. When no other insurer will provide windstorm coverage for property owners along the Texas coast, TWIA steps in.

According to the Houston Chronicle, the legislation passed this morning "would allow the windstorm association to issue bonds before or after a storm of up to $600 million, to be paid for through charges to TWIA policy holders and other property and casualty policy holders in Texas."

With hurricane season approaching it is important to have the necessary resources, like insurance, lined up in the unfortunate case that it is needed. While we often see insurance companies delay or deny legitimate claims, it is imperative to maintain coverage, buckle down for the storm season, and find the help you may need after a hurricane; whether it be from your insurance provider or an insurance attorney.

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Investors in Sonoma County are relieved at the arrest of Gary Armitage and Jeff Guidi for securities fraud.

The two were recently arrested and have been charged with multiple counts of securities fraud and residential burglary. The residential burglary charges relate to the fact that the two entered people's homes while selling their schemes. Armitage and Guidi ran AGA Financial, an investment company in Santa Rosa. Their Ponzi scheme swindled an estimated $200 million from thousands of people before it fell apart. The duo's business partner, James Koenig, was also arrested on similar charges. If they are convicted, the three could each spend 100 years in prison.

According to Attorney General Jerry Brown, the three used investor money to bankroll their lavish lifestyle, including luxury residences, expensive cars, and a Lear jet. Most of the investors were retirees who Armitage and Guidi coaxed into investing their life savings.

According to the AG's office, the three men established a network of 55 businesses to keep their Ponzi scheme going. In 1997, the three began selling real estate projects, promising investors they were secure low risk investments with returns of 12 percent or more. Investment planning seminars were held across the state,and investors handed over sums ranging from between $50,000 and $1 million. Some people actually invested their entire savings accounts funds and retirement portfolios.

In 2001, the three redirected investor funds into purchasing more than 20 senior care facilities. Each of them were sold to one of the affiliate companies, which would then sell shares in the property at a high price to new investors. Another affiliate company in the network would manage the property to increase revenues. Any revenues were used to pay interest to investors and keep the scheme afloat. The scheme began to unravel when the defendants could not keep up with interest payments to investors. That did not stop Armitage and Koenig from seeking investors, however. They continued to attract new investors using new investment funds to pay off earlier investors who were beginning to get worried.

With frauds tumbling out of the closet at an alarming rate, it looks like securities attorneys will be busy for a while to come.

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