Sedgwick New York Obtains Dismissal of Fidelity Insurance Claim Involving $700 Million Ponzi Scheme
Sedgwick’s New York office obtained a complete dismissal with prejudice of an employee dishonesty action brought by the Bankruptcy Trustee of the Bennett Funding Group, Inc. against its fidelity insurer in the U.S. Bankruptcy Court in Albany, N.Y. Sedgwick's client paid no indemnity on any part of the fidelity claims. (In re Bennett Funding Group, Inc., et al., Case No. 96-61376 (Bankr. N.D.N.Y.)(Substantially Consolidated), Richard C. Breeden, as Trustee v. Utica Mutual Insurance Company, Adv. Proc. No. 03-90289 (formerly 98-70693A)(March 2004)).
The fidelity action involved a $700 million Ponzi scheme perpetrated by the Bennett Funding Group’s Chief Financial Officer, Patrick Bennett, who is now serving a 20-year federal prison sentence. In a related action, the U.S. Court of Appeals for the Second Circuit affirmed that the Bennett family controlling insiders, including the Bennett Funding Group’s sole shareholders, were in control of every aspect of every activity within the Bennett Funding Group empire, including the fraud. Breeden v. Kirkpatrick & Lockhart LLP et al., 336 F.3d 94, 100-101 (2d Cir. 2003).
On behalf of the fidelity insurers, Sedgwick's New York defense team argued, among other things, that the Bennett Funding Group was the alter ego of the defalcating Bennett controlling insiders. The wrongful conduct of those Bennett insiders would be imputed to the Bennett Funding Group, and therefore preclude recovery under the policy.
The Sedgwick defense team included Robert B. Budelman, Jr. and William P. Campos, of Sedgwick's Fidelity Practice Group.