"We allege a massive fraudulent scheme involving unique financial structures and various complex investments," said Osman Nawaz, chief of the Securities and Exchange Commission's Division of Enforcement's Complex Financial Instruments Unit, in a news release accompanying the complaint on Tuesday.
The SEC's civil action is the first time the government has accused Mr. Lindberg of fraud. He is a North Carolina entrepreneur who bought several insurers and then loaned at least $2 billion of their assets to entities he controlled. Four North Carolina insurers have since been placed into rehabilitation, a type of receivership akin to reorganization under federal bankruptcy law, by that state’s regulators while another in Bermuda is in liquidation.
Mr. Lindberg was released from federal prison in July after an appeals court overturned his conviction on a separate criminal matter in 2020, ruling that the district court judge erred in his jury instructions.
Mr. Lindberg's case, in which he was accused of attempting to bribe North Carolina's insurance commissioner in order to obtain preferential regulatory treatment, is tentatively scheduled for retrial in March 2023.
In the criminal case, Mr. Lindberg has denied any wrongdoing. In a statement Tuesday, Susan Estrich, a spokeswoman for Mr. Lindberg, called the SEC civil action "piling on," saying it was evidence of a "weak case."
According to Ms. Estrich, the Lindberg team presented the SEC with millions of pages of documents and bank records and "zeroed in on a handful of transactions representing less than 1.5% of that period's transaction volume." She went on to say that Mr. Lindberg "intends to fight the false allegations that have been made against him, as well as to strengthen and support his insurance companies and policyholders."
In a lawsuit filed Tuesday in federal court in North Carolina, the SEC claimed that Mr. Lindberg and a co-defendant, Christopher Herwig, a former chief investment officer for North Carolina insurers, refused to testify during the SEC's investigation, citing their Fifth Amendment right against self-incrimination.
Mr. Herwig's lawyer, Claire Rauscher, stated, "we will vigorously defend against the allegations."
The SEC claimed in its complaint that the insurers' funds were supposed to be used to pay policyholder claims. Mr. Lindberg, however, allegedly "treated the funds as his own assets and used the money for any purpose he decided was in his best interest," according to the agency.
According to the SEC, in one alleged scheme that began in late 2017, Messrs. Lindberg and Herwig had the insurers sell assets after being questioned by North Carolina regulators, then repurchase essentially the same ones under a different structure, at an inflated price.
According to the SEC, a Lindberg-owned entity pocketed the difference, totaling more than $57 million. According to the complaint, the insurers' boards were not informed about the transaction's mechanics or that Mr. Lindberg pocketed the difference.
The SEC claimed that the transactions weakened the insurers' finances. Furthermore, the agency stated that $3.3 million of the insurers' assets were used to finance the purchase of a personal residence for Mr. Lindberg, and that more than $4 million of the profits from the round-trip transactions were transferred to Mr. Lindberg's personal cash account.
The SEC also claimed that Mr. Lindberg's Malta entity, Standard Advisory Services Ltd., received more than $21 million in advisory fees from the defrauded insurers. According to the SEC, the Malta entity, which was an SEC-registered investment adviser for a time and is also a defendant in the case, lent $35 million to entities controlled by Mr. Lindberg and paid $12.9 million in dividends to a shell parent company he owned.
The defendants also allegedly extracted millions of dollars in cash and other liquid assets from the Bermuda insurer for use in Mr. Lindberg's other businesses by loading the insurer's books with illiquid, "sham investments," according to the SEC.
The SEC filed the action under its authority to regulate investment advisers, claiming that the individual defendants and the Malta entity owed a fiduciary duty to the insurers they were advising. Among other things, the agency seeks disgorgement of allegedly ill-gotten gains and other monetary penalties.