MODULE 5

CHAPTER 8 Cases no. 6

The Amigito Insurance Agency (continued from chapter 7)

The next morning, Jason skipped breakfast and started working with a large pot of coffee on his desk. He dumped the contents of his valise onto his desk and took a gulp of coffee from the burgundy, 20-ounce bone-china coffee mug that he had purchased on a diving trip to the Cayman Islands. His thoughts then drifted southward across the Gulf of Mexico, across Panama, and into the Columbian mountains. He could never get his ex-wife out of his mind, and just the thought of her made his eyebrows twitch and his lips tighten in anger.

Seeing the disorganized pile of documents on his desk brought him back to reality. There were printed copies of e-mail messages, pages torn from hand-written ledgers, photographs of a man entering and leaving a large, unfamiliar building, legal documents, images of cancelled checks, and piles of printed bank statements.

A note neatly written by hand on a sheet of computer paper caught his eye because the initials C.P. appeared at the bottom of the page. The note appeared to be a list of cryptic bullet points. On one line, there were only the words AV carrier. On another line were the words ML-Offshore. The rest of the note was filled with undecipherable phrases, some of which were circled and underlined.

He turned his attention to a printed copied of a one-page e-mail message with a yellow sticky note attached to it. On the sticky note were the words S. Gun.

The e-mail message read as follows:

I am returning to your agency the attached check for $1,249.41 made out to Kason Zttle Zettllemmen, my son who passed away ten years ago. He was born with defective heart and only lived 24 hours before passing away. Although I would love to keep this check, my bank would not cash it, and even if they would cash it, it would be wrong to keep a life insurance payment when no policy existed.

Sincerely,

Martha Zettllemmen

Jason quickly checked online birth and death records and verified that ten years before a Kason Zttle Zettllemmen had in fact been born and died as described in the e-mail message. Further, there was no record of anyone else every having existed with that same name.

His cell phone rang. It was Gretta Cleaver. Not a good time to talk, he thought. He ignored the call. But a minute later he received from her a text. Call me, was all it said. It seemed highly unusual for her to be calling on a Saturday. It was a perfect sunny day with light winds. She would normally be out with friends and family on her 38-foot catamaran. So, the call worried him. Nevertheless, there was still time to decide what to do with Perdido, but he would first need to meet again with the man, and that needed to happen right away.

Jason arranged to have the lunch meeting in the restaurant of a nearby beach hotel. The location would be perfect because locals never ate there. It was in the heart of the tourist area with large crowds of people and prohibitive parking fees.

Jason walked the few blocks to the hotel, passing along the colorful sidewalk restaurants loaded with tourists drinking cold beers in frosted classes. With only a very light ocean breeze for comfort, he began to feel sweaty. Vacationers whizzed by him on skateboards, and the smell of Cuban grilled steak, black beans, and rice stirred his hunger. He remembered that he been so anxious to start work this morning that he had forgotten to step on the bathroom scale, as was his custom. He never allowed his weight to increase more than two pounds over his normal one-hundred-sixty-five pounds, even if that meant starving for two or three days.

He made it a point to arrive fifteen minutes early. He climbed onto a tall bar stool at the pool bar, from where he had a perfect view of the entrance to the restaurant on the other side of the pool. He wanted the opportunity to observe Perdido's arrival and see if the mysterious man was alone. His years of often-painful experience working with police, detectives, and attorneys had taught him that he could never be too careful.

Perdido appeared exactly on time at the entrance to the pool area. He was wearing a white loose-fitting suit, gray boat shoes, and a white fedora hat without a gold band around the top. Jason almost didn't recognize him, but, despite the hat and dark sunglasses, there was something in the way the way the man walked that complemented his mysteriousness. But, good, he was alone.

As Perdido entered the restaurant, he stopped in the doorway, turned, and looked carefully around the pool area. But his glance went right past Jason as if he knew what or whom he was looking for.

Jason ordered a hot roast beef sandwich with coleslaw, and Perdido ordered from the bar a double whiskey on the rocks.

I looked at your documents, said Jason. But I couldn't make any sense out of them.

Okay, said Perdido. I bought this insurance agency, Amigito Insurance, from this business broker. I had been looking for some time to buy an agency. It was a perfect deal, with a high-quality client base composed of mostly premium homeowner policies. I got it at a great multiple of only 2X. My sole reservation in the deal was the quality of some of the insurance carriers, but I managed to deal with that in negotiating the price.

Jason nodded, and Perdido continued after sipping from his drink. I carefully did my due diligence and checked everything out with a fine-tooth comb. I reviewed the monthly carrier reports and the seller's tax returns for the previous three years, along with the business's expense reports and a ton of other documents. Everything looked good.

It sounds like an awfully low multiple for such a low-risk business, said Jason.

To be honest, said Perdido. It was a total steal. The seller could have got an extra million for it.

Jason glanced at his sandwich and realized that it was getting cold. He had seen many bad business deals over the years, so he knew exactly what to expect in conversations such as this.

How is it that you got such a good deal? Jason asked.

Perdido gulped down the rest of his drink and motioned for another. The sound of salsa music poured in from the pool area as a large family entered the restaurant.

My father was a mean dude, said Perdido. But he taught me how to make business deals. The seller was in a hurry to pack up and move back to Colombia. He had been in South Florida for only six months and hated it here. He wanted to get out as fast as possible. So, I made him a low offer. The business broker pushed the sale. He told the seller that I didn't have another penny to my name and that it could take a year to find another buyer. So, the broker got his fat commission, and I got the business.

Jason was becoming bored with the discussion. So far, he had heard nothing that really interested him. So, where's the fraud? Jason asked.

I don't know, replied Perdido.

Jason had heard enough. I'm out of here, he said, and you can take your money back unless you have something good for me.

Perdido's face sank, and he looked like he had seen a ghost. Okay, okay, he said. Before the sale, the carrier reports showed about thirty thousand dollars a month in net commissions, but since the day of the sale, I'm receiving only twenty thousand dollars a month. Somehow, I'm being robbed of ten thousand a month, and this has been going on now for four months.

All that means is that you paid too much for the business, said Jason.

Perdido banged his glass on the table. No, no, he said. You have all the reports for the 12 months leading up to the time I bought the business. In the worst month during that time, the agency received twenty-eight thousand dollars. But in the four months since I bought the agency, the best month has been nineteen thousand dollars. I'm being robbed of around ten thousand dollars a month.

Jason thought about the possibility of overstated revenues in the seller's financials.

This guy is trying to destroy me, said Perdido. He's trying to force me out of business so that he can take over the agency again and give it to his son. From the very beginning, he talked about leaving the business to his son instead of selling it to me.

Jason felt his cell phone vibrating is his pocket. He hoped it wasn't Gretta Cleaver again.

The waiter brought another drink for Perdido, and he immediately gulped half of it down.

You're not making any sense, said Jason. How can the seller be robbing you if it's your business?

Now you are catching on to my problem, said Perdido with an air of finality. When you buy an insurance agency, it takes time for the carriers to give you an appointment, and before that happens, the money continues to flow to the previous owner.

But you bought the business, and now you are the owner. So why is there a problem?

Perdido downed the rest of his drink. It was an asset purchase. I bought all the polices as of the closing date, but I have to depend on the seller to forward me funds collected until the carrier placements are in place.

That sounds simple enough, said Jason. If you think he is shorting you, then all you have to do is reconcile the current carrier reports against cash receipts.

Perdido leaned forward and spoke loudly in an accusatory tone. You're supposed to be a forensic accountant and you don't see what this guy is doing to me. Maybe I need someone with more experience in your firm.

The last thing in the world that Jason needed was this guy going to Gretta. He now wished he had never accepted this man's money. The man was getting loud and out of control.

Just

Perdido interrupted in an angry tone. I don't understand your fancy accounting talk. But I can tell you that I can't get any information out of the man. Each carrier gives the agency a login, but I don't have the logins because I'm not yet the appointed agent. And the bank account is in the name of the former agency. So, this guy is choking me. I don't even have the cash to make payroll.

Sounds like you need a lawyer, said Jason.

As I told you, I've got one, but I think they got to her somehow. At first, she told me that this is a no-brainer, an easy case. She was going to file for an emergency order requiring the seller to immediately produce the bank statements and a full accounting. But then she completely changed her tone after speaking with the seller's attorneys this past week. Now she's telling me that we don't have the evidence to do anything right away. She says that it's a contract dispute that could take as long as one or two years to get the case to trial, and even then, we could be looking at appeals. I can't hold out that long. Then get a short-term bridge loan, said Jason. Use the business assets as collateral. I thought of that, and I'm trying to get one. But the bank is afraid to give me a loan. They have really smart commercial loan officers who quickly discovered that I'm not yet appointed by the carriers, that I'm having trouble making payroll, and so on. Jason had heard enough. If this guy couldn't make payroll there wouldn't be any money for Cleaver and Associates. I understand your situation, and I feel really bad for you. But I don't see anything I can do to help you. I still have the cash you gave me. If you can wait here for fifteen minutes, I'll go and get it. Perdido's phone rang. When he took the call, Jason could hear a man's voice on the other end of the call. Perdido listened without saying a word. Then, he hung up looking like he had seen a ghost. Jason could only think of how he had gotten himself into such a mess and how badly he needed this man to take back his money and then disappear from his life. How could he have been so stupid to risk his career for something like this? I'm not taking any money back. You are going to help me, said Perdido. And if you don't help me, I'll take my case to someone else in your firm. There's a real crime going on here. It's not just a contract dispute. And remember how I told you that I have proof that a U.S. senator is involved in this. This goes a lot deeper than you think, and the proof is in the documents that I gave you. Jason was beginning to realize that he had gotten himself into a real mess by accepting the $20,000. He couldn't turn it into the firm, and he didn't dare deposit it into his bank account because the bank would surely flag the deposit and ask for documentation. He needed time to develop a plan. Jason barely slept that night. At daybreak, he walked barefoot on the beach as the sun suddenly exploded

Required

1. How reasonable was Perdido's response to possible fraud? Explain.
2. How reasonable was Jason's response to possible fraud? Explain.