Why Would HIIQ Sell Policies from This Boca Raton Insurer?
“HIIQ Partners with Best In-Class Carriers” – November 2018 HIIQ Investor Presentation
Documents reveal that HIIQ has sold a significant amount of policies from a Boca Raton insurer with less than $7 million in capital and ties to previous insurance frauds, further calling into question HIIQ management’s credibility and claims about its compliance. The CEO and CFO of the insurer, American Financial Security Life Insurance Company (“AFSLI”), held executive positions at a fraudulent insurance company that collapsed in 2009, leading to criminal indictments of two other officers. AFSLI’s CEO, Michael Camilleri, is the registered agent and attorney for companies the FTC recently declared were “permeated by fraud” and owned by Steven Dorfman, an individual allegedly affiliated with organized crime.
HIIQ claims that the insurers who underwrite it’s polices are “best-in-class carriers with whom we have nurtured long-standing relationships”. The company’s SEC filings and pitchbooks specifically name large carriers such as Chubb, Standard Life, and Everest. That’s why we were surprised to learn that undercover FTC investigators were sold HIIQ policies underwritten by AFSLI this year (below).
(Above: Capture of a HIIQ policy sold to undercover FTC investigators)
AFSLI’s CEO is an attorney named Michael Camilleri and its CFO is an accountant named John S. Maloney. Both are former Directors of First Commercial Insurance Company (“FCIC”), where Camilleri was the General Counsel and Maloney the CFO. FCIC collapsed in 2009 after filing false financial reports leading to the criminal indictments of two other executives for fraud (neither Camilleri or Maloney were charged, Maloney resigned in 2007). In addition to “worthless cash assets”, the Florida Department of Financial Services also discovered that “FCIC sold 2,000 automobile service warranty policies that were not reflected on the company’s books”.
Camilleri and Maloney moved to AFSLI which purchased its Boca Raton office from the FCIC receiver in 2012, according to deed records (We note that AFSLI has recently put this office up for sale). Members of AFSLI’s Board of Directors currently include an auto mechanic and a paralegal who were found to lack “business acumen and experience in the field of insurance” during a routine 2014 regulatory examination.
We discovered that Camilleri is also an attorney for Dorfman. Florida Corporate records from March 2018 show that Camilleri is the “Attorney in Fact” for entities including Senior Benefits One, which is specifically named in the FTC’s complaint. Recall that bank records prove HIIQ paid $145 million in cash to Dorfman’s companies before the government placed them in receivership.
Records also show Mr. Camilleri has previously represented individuals tied to health insurance scams:
- In 2012, Camilleri was named as a defendant in a class action suit by plaintiffs who claimed they were scammed after purchasing “fraudulent and/or worthless insurance plans” from a New Jersey boiler room operation. Camilleri allegedly “retained and misappropriated” $1.6 million in premiums entrusted by a client “in order to evade attempts by the class to collect judgements”. Although the suit was later dismissed, the Department of Justice brought a 57-count indictment against 4 participants “for their role in a national health care scheme that defrauded more than 17,000 victims” (Note: Neither Mr. Camilleri or his client were indicted).
- In 2013, Camilleri represented a boiler room named PJP Health accused of “misleading consumers by telling them they were purchasing major medical coverage”. PJP employed Philip and Joseph Teseo, former Stratton Oakmont Brokers who are permanently banned from the securities business after pleading guilty to felonies.
Are investors to believe this is all merely a coincidence? We doubt that Chubb, Standard Life, and Everest have extensive histories with people tied to such scams or convicted of fraud.
Yet AFLISC’s regulatory filings indicate that premiums written doubled to $12.5 million through the first nine months of this year (below). If these numbers are to be relied upon, this means that AFSLIC could represent as much as 11% of HIIQ’s business and is growing quickly. Why has HIIQ been selling more policies from AFSLIC? What purpose does AFSLIC serve HIIQ?
Source: AFSLIC NAIC filing. Note that HIIQ reported paying $111.6 million in YTD Risk Premiums to carriers during first nine months of this year, suggesting that AFSLIC could represent as much as 11% of HIIQ’s business.
We are informed that management has suggested to investors and analysts in private this week that it will reach a favorable settlement with the 42-state investigation prior to its upcoming analyst day. While we have no idea if this is true, a sell side analyst wrote that management also denied having anyone “sketchy or remotely sketchy” left in its network. Yet seemingly everywhere we look we see sketchy operators, AFSLIC being the latest example. We believe management lacks credibility and we are short HIIQ shares.