Gary Shovlain lost $2.7 million of his $3.7 million investment in First Americans Insurance Service (FAIS). But he is so convinced the executives behind FAIS are innocent that he’s bringing on two of the officers to advise him in launching his new insurance company also seeking Native clients, Native Nations Insurance (NNI), incorporated under the Omaha Tribe of Nebraska.
Federal prosecutors are charging FAIS as having operated one of the nation's largest Ponzi schemes, reported the Lincoln Journal Star. The Grand Island, Nebraska-based insurance agency that declared bankruptcy in January 2009 allegedly promised investors a high 12 percent return. Some early investors were paid, but possibly with money that was put in by later investors. FAIS declared bankruptcy in January 2009.
“You may think this is a strange opinion I have developed given the large sum of money I had invested and now have no chance of recovering. I do not hold them responsible,” Shovlain said of the FAIS officers in a letter to Judi Morgan Gaiashkibos, the executive director of the Nebraska Commission on Indian Affairs.
Shovlain wrote Gaiashkibos in response to her comment in the Lincoln Star Journal that she is concerned the Omaha Tribe may suffer the same fate as the investors of First Americans. Shovlain countered: “NNI is not borrowing money from any Tribe so there is absolutely no risk involved." He asserted that when the economy took a dive in 2008, many FAIS investors requested their principle back. “Over $4 million was returned to the investors in the final 90 days of 2008,” he said. “This ‘run on the bank’ is what forced FAIS to file for Chapter 11 bankruptcy protection and reorganization.”
The allegations against FAIS “came down at same time as [Bernard L.] Madoff and the guy in Texas [Robert Allen Stanford]—those were true Ponzi schemes,” Shovlain told Indian Country Today Media Network. “The definition of a Ponzi scheme is where the perpetrators gained personally, and they [FAIS officers] for sure did not. They were simply borrowing money from private individuals to build reserves.”
While reportedly “$140 million dollars were lost, stolen, or somehow disappeared,” Shovlain noted, he affirms that the allegations against FAIS are unsubstantiated. “Over the years over $135 million dollars was paid out to the investors in interest and principle,” Shovlain said in his letter to Gaiashkibos. “Given enough time and a change in the way the note program was administered, the principle could have been returned.”
Shovlain was a retired owner of a construction company and not a part of FAIS until February 2009. At that point he was elected chairman of the creditors committee, which worked with a federal bankruptcy trustee in reorganizing FAIS. “I went with them when they visited Tribes and was equally impressed with the relationships they had established,” Shovlain said in his letter to Gaiashkibos.
Shovlain insists that FAIS ran a reliable insurance firm for three decades, selling property, casualty & liability (PC) insurance and occupational injury benefits (OIB) through their sister companies First American Insurance Group, incorporated under Kaw Nation tribal law in 1993, and First Nations Compensation Plan. “They have done an excellent job for 30 years of writing insurance,” he told Indian Country Today Media Network. “They have not had one written complaint in all their time of doing business.”
But federal prosecutors contend otherwise. In December, the United States District Court of Nebraska charged three officers of First Americans—Stella Levea, James Masat and Kenneth Mottin—with indictments of 25 counts each. The trio allegedly committed conspiracy against the government, mail fraud and insurance fraud, reported the Associated Press. They could face from five to 20 years in prison on each count if convicted, according to the Lincoln Journal Star. The three officers, who claimed between $100 million and $500 million in liabilities when they filed for Chapter 11, have all pleaded not guilty, according to the AP.
Shovlain defended Levea and Masat as “two of the nicest, caring, generous, and honest people I have had the pleasure of meeting." He declined to comment on Motton. He did criticize one person running the company's promissory note program: “I will say that the note program was out of control,” Shovlain acknowledged to ICTMN. “The individual put in charge of note program caused big conflicts."
But Shovlain still asserts that the note program never intended to defraud anyone. It just collapsed when the economic recession led many investors to request that their initial investments be returned immediately, leaving FAIS "very vulnerable to the economy,” Shovlain told ICTMN.
Many investors have claimed in bankruptcy documents that they are owed millions of dollars, reported the Lincoln Star Journal.
Since submitting two vehicle claims in October 2010, Carol Jared, director of the Wichita, Caddo, and Delaware Tribes’ Women, Infants, and Children Program (WDC-WIC), told ICTMN in an email, “We’ve heard nothing other than ‘Get in line.’”
Levea responded to Jared’s questions on August 15. “...[T]he renewal certificate for FAIG was not renewed by the Kaw Nation and FAIG has no assets nor any reserves and surplus. Therefore, FAIG will not be able to take care of these outstanding claims.”
No longer officers at FAIS, Levea and Masat have joined Shovlain as consultants to his new venture, NNI, approved by the Omaha Tribe’s enterprise board on December 14. NNI will sell PC insurance and OIB to American Indians and will write that insurance “with an A-rated carrier,” Shovlain told ICTMN. “This company is part of a group of companies that have a net worth of $1.5 billion,” he said. “They have contracts with some of the best reinsurers and claim companies in the nation.”
Still, a spokesperson for the Nebraska Department of Insurance told the Lincoln Star Journal that NNI has been under investigation—another insinuating report that Shovlain refutes. "We voluntarily gave them a copy of our corporate papers and they found what amounts to a typo on the signature page," Shovlain told ICTMN in an email. "They want to see the word 'accepted' circled. [We] inadvertently did not circle 'accepted' but the intention is clear. The Omaha Tribe welcomed us, we paid the fee, and have been paying the rent ever since. For the DOI to say they are investigating NNI is misleading. Ironically, the DOI does not even have jurisdiction over any Tribal corporation."
The attorney for the Omaha Tribe, with Thompson Law Office, Ben Thompson, questions the department’s intentions. “[The] aspersions being cast against Gary Shovlain and Native Nations Insurance seem to be a pretext for an infringement of the Omaha Tribe’s sovereignty by the state’s Department of Insurance,” Thompson told ICTMN.
The NNI team is staffed with several former FAIS employees. “I hired [FAIS] service people who sold insurance and serviced these customers—they’ve done it for 80 years combined,” Shovlain told ICTMN. “They’ve built great relationships with tribes and families, and they know their kids’ names.”
Shovlain also credits his consultants Levea and Masat with helping him make NNI a reality, adding that he hopes justice is paid and they are proven innocent in court.
“Without them, I couldn’t have gotten this set up,” Shovlain told ICTMN. “Right now, we don’t know if they’re going to be exonerated or put in jail. My point-of-view is that they should be exonerated, because they did nothing illegal.”