Shares of Berkshire Hathaway were lower Tuesday on news that it is being sued by a New York City-based bicycle courier company. Breakaway Courier Systems said in the complaint that Warren Buffet’s holding company misled them into paying for a workers’ compensation plan that cheats employers. Newslook
Billionaire investor Warren Buffett’s Berkshire Hathaway conglomerate has been sued by a New York City bike courier company for allegedly scheming to steal insurance premiums in a “reverse Ponzi scheme.”
Breakaway Courier, a company with roughly 300 employees, in a lawsuit filed Friday accused Berkshire (BRK.A) and its Applied Underwriters subsidiary of improperly “siphoning” workers’ compensation insurance premiums “through a web of under-collateralized shell companies.”
The alleged fraud “is essentially a reverse Ponzi scheme,” the courier firm charged in a 46-page legal complaint filed in New York County State Supreme Court.
Berkshire and Applied Underwriters promised Breakaway and others who sought the insurance coverage discounted rates, a share in underwriting profits from the polices and rewards for low levels of claims and losses, the lawsuit alleges.
The New York allegations focus on Reinsurance Participation Agreements — complex derivative instruments the lawsuit says shift all risk of losses from worker injuries back onto those who are insured.
“Victims are led to believe that their “capital” is being paid into “protected cells,” which will eventually be returned to them,” the complaint alleges. “Instead, Berkshire Hathaway illegally siphons off premiums through an unlicensed, unregistered and undercollateralized Hawaiian entity, leaving New York employers and injured workers without the funds that New York State requires to be available to cover losses due to worker injuries.”
Regulators in California, Vermont and Wisconsin “have all condemned this scheme as illegal,” the lawsuit charged.
Berkshire representatives did not immediately respond to a message seeking comment on the legal complaint, which seeks at least $18 million in damages and the return of all insurance premiums paid.
The conglomerate’s Class-A shares fell nearly 2% Tuesday.
Headed by Buffett, the Omaha-based conglomerate also has several well known insurance-related subsidiaries, including Geico auto insurance and General Re reinsurance.
Raymond Dowd, the attorney representing the bike courier company, told theInsurance Journal the lawsuit is similar to a case in which California’s insurance commissioner faulted Berkshire’s Applied Underwriters and California Insurance subsidiaries for selling nontraditional workers’ compensation policies. That case is continuing.
Dowd also said the alleged scheme differs from a more traditional insurance pool.
“This is a pool with a drain, and the drain goes right into Berkshire Hathaway,” he told the Insurance Journal. “Everything is swept out of the pool into a Hawaii captive.”
Martin Schwartzman, a former official of the New York Department of Financial Services, submitted an affidavit with the lawsuit that concluded the Berkshire plan could face the bike courier company with “potentially unlimited liability in the event of multiple catastrophic losses.”