District 25 Forecast: Campaign Heatwave!

Reiser sells his insurance firm while a state agency negotiates the fine

After a fairly low-key start, the contest to pick a successor to District 25 Congressman Ken Bentsen is starting to crackle as candidates fire away at each other's business backgrounds.

There's fresh fodder after Republican Tom Reiser disclosed he has sold his Houston casualty and property insurance firm and "retired" at age 51. Even before the announcement, Reiser was a multimillionaire who has thus far loaned his campaign more than $900,000.

The sale comes while the firm, Technical Risks Inc., negotiates a fine to settle a complaint by the Texas Department of Insurance (TDI) for the company's role in a scam involving the sale of fake premiums to several Texas nursing home chains.

The developments are not yet reflected in the candidate's Web site, which tells of him founding the firm in 1985. "Tom has demonstrated leadership in the business world...Under his guidance the company has shown steady growth and has a reputation as a high quality insurance 'boutique.' "

At the same time he was unloading the boutique, Reiser's campaign launched an advertising blitz assailing Democratic opponent Chris Bell as "ethically challenged" and a Texas version of Bob Torricelli, the disgraced lame-duck New Jersey senator.

One of Reiser's attacks is pegged on a previously reported incident in December 1999 (see "Lutfi's Loot," January 20, 2000). Bell, then a city councilman, and several other colleagues received Christmas gifts of gold-plated eating utensils from the winner of a big city contract, Lutfi Hassan. After the media coverage, other officials returned the flatware to Hassan and Bell donated his set to charity. A Harris County grand jury declined to bring charges against anyone.

At the time, Bell was chair of the City Council Ethics Committee. He described the flatware incident as "a wakeup call" concerning gratuities from special interests.

Not surprisingly, Bell's campaign operatives would prefer to focus on the current developments with Reiser's former insurance company.

"Reiser has been asking voters to vote for him because he's a businessman," says Bell spokeswoman Rachel King. "You need to look at this case and see what kind of a businessman he was. These nursing homes turned to him and trusted him and he let them down. He had an obligation to find them a reputable insurance provider and he didn't live up to his obligation."

The thrust of the TDI complaint, set for a hearing in Austin the day before the November 5 election, is not that Reiser's firm engaged in any criminal activity -- rather that it failed to exercise due diligence in brokering policies from a bogus Canadian-based group pretending to represent a legitimate insurance firm.

According to a draft of a TDI pleading obtained by The Insider, Technical Risks, Inc. sold the fake coverage to its customers, collected premiums and delivered policies.

Reiser's company "misrepresented the nature of the transaction by advising customers that the insurance premiums were being financed through an authorized premium finance company," states the draft by Ed Salazar, a staff attorney for the TDI Enforcement Section.

"Technical Risks Inc. had customers execute financing contracts which were never funded nor accepted by an authorized premium finance company, but continued to accept payments from customers, including interest." The complaint alleges that violated the Texas Insurance Code.

"In truth and fact," states the complaint, "there never was any insurance carrier for the product purportedly sold to customers." It also alleges that Technical Risks hasn't refunded the full amount of premiums collected. The complaint asks for revocation or suspension of several Texas insurance licenses held by Technical Risks, or the imposition of an administrative fine.

The complaint "pretty much speaks for itself," says attorney Salazar. He points out that Technical Risks actually was drawn into the bogus insurance promotion by Monarch Insurance, which is also under investigation by TDI and the target of lawsuits in Harris County.

"Obviously at this point in time nursing home coverage is extremely expensive and difficult to come by," explains Salazar. "So Monarch started advertising this program that they had. Technical Risks had some clients purchase the insurance, collected the premiums and forwarded the premiums to Monarch. Monarch forwarded the premiums upstream to this broker -- and lo and behold, there is no insurance company."

Reiser spokeswoman Phaedra Dugan offers her candidate's version of what happened: A person was claiming to be an underwriter called Technical Risks, "but it turns out he was a crook and produced documents to prove that he was a certified underwriter. A Technical Risks worker thought the guy was legitimate and they went through with an insurance deal. He hornswaggled the broker at Technical Risks."

Dugan stresses the firm is cooperating with TDI in the investigation and has returned all premium payments in its possession.

Salazar expects Technical Risks to come out of the administrative hearing with a fine but no loss of its licenses.

"We worked out a settlement," says the attorney. "They've made a complete accounting. They did not profit from it; they didn't keep any of the money; they are cooperating with us and turned over all their books and records promptly. They are looking at a fine. Monarch is looking at a license revocation."

Because Technical Risks still had some clients' payments and returned that money, Salazar says those clients were not as badly burned as some others in the multi-state scam.

Dugan also points out that the candidate had sold the company several weeks before.

"If these allegations were true," commented Dugan, "Brown and Brown, a $2 billion company on the New York Stock Exchange, would never have bought Technical Risks." Asked for details on the sale -- the date and amount of cash paid for the firm -- Dugan responded, "You'd have to ask Tom."

At a later campaign forum for the congressional district covering south and east Houston, Reiser did mention for the first time that he had "hung up his hat and boots in the insurance business," and retired. As of press time, Reiser had not returned repeated Insider requests for an interview about the sale.

Candidate Bell says he has tried to stick to valid issues rather personal attacks, a position no doubt made easier by his continued lead over Reiser in polls. Because Reiser has campaigned on his standing as a businessman, Bell claims the insurance investigation is fair game as an issue.

"Businesses, especially nursing homes in this day and age, trust their insurance agents to find reliable coverage," comments Bell. "It sounds as if Mr. Reiser and their company clearly had that responsibility... Due diligence is the least of what people expect when they enter into a relationship with an insurance broker."

Reiser spokeswoman Dugan claims to be "perplexed that Mr. Bell has gone on the attack with such an ugly vengeance in light of the fact that he believes he is up so far in the polls." She then listed a bill of particulars on Bell's alleged ethical lapses, including the flatware gift, an IRS lien on his house in 1997 and two rent disputes with landlords of his home and business.

"Chris Bell, as a personal injury lawyer, could probably shed a lot of light on the barrage of frivolous lawsuits that small businesses face. That would be interesting, and he will know, because he has sued a lot of people in his personal life."

For good measure, she cited two instances where Bell's law license had temporarily expired for nonpayment of his Texas bar fees.

Most of the items Dugan listed had been publicized during Bell's race for mayor last year. Bell explained that the tax lien was a routine part of a payment plan worked out with the IRS for taxes he was unable to pay in 1997, and the account has been paid off. He dismisses the litigation with landlords as disputes over a rental deposit on a residence that the owner refused to return, and the settlement of an unexpired office lease when he closed his law firm in 1999. The brief license suspensions resulted from tardy payments by his law firm.

Dugan isn't buying the explanations. "As a personal injury lawyer himself," she snipes, "Bell exemplifies the reason why every landlord knows you never rent to a lawyer."

We don't know about his landlord constituency, but it's apparent Reiser has kissed off the attorney vote in the upcoming election.

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