The Berkeley County School District filed a lawsuit in federal court Thursday seeking $42.5 million from a Charlotte, South Carolina insurance brokerage, claiming its father and son executives sold the district excessive policies and charged exorbitant fees.
The district spent almost $14.2 million in the last 16 years "to insure itself against non-existent, or nominal, risk," the suit says.
The case also sheds light on methods used by fired district Chief Financial Officer Brantley D. Thomas III, 61, who has admitted to embezzling almost $1 million from the district and accepting kickbacks from insurance executives.
Federal indictments against Thomas charge that between 2013 and 2016, he received $32,000 from an insurance agency in increments of $2,000. According to the lawsuit, the conspiracy began as early as 2001.
The suit's defendants include: Thomas; Stanley Pokorney and his son, Scott Pokorney; Knauff Insurance Agency; Chicago-based Hub International Limited, the insurance brokerage firm that acquired Knauff in 2012; and two of Hub's subsidiaries, including one based in Charlotte.
Stanley Pokorney was a senior vice president with Knauff and then with Hub, and his son is a commercial sales executive. Stanley Pokorney was the district's consultant and broker since at least 1993, the year Thomas was hired by Berkeley, according to the lawsuit.
The suit details "insidious schemes" hatched by Stanley Pokorney and Thomas "to defraud the District and its children out of tens of millions of taxpayer dollars" that could have been used to hire new teachers, buy supplies and equipment and improve buildings.
The pair "lined their pockets at the expense of the children of Berkeley County for at least 15 years," according to the suit.
"As a Board we will pursue every avenue to right the terrible wrongs that have been carried out against the children of Berkeley County School District," said board Chairwoman Sally Wofford. "Our goal is to recover all monies lost by BCSD."
Thomas oversaw all district finances until he was fired Feb. 7, a day after officials learned of a probe into district finances by Wells Fargo and the FBI.
According to the federal lawsuit, Thomas received payoffs for recommending unneeded insurance policies and policy reviews. He and Stanley Pokorney communicated via emails to Thomas' personal account and mail to his home.
Thomas was also rewarded with payoffs that included expensive hotel stays, dinners and spa treatments for convincing other districts to buy insurance, the suit says. Hub also provides services to districts in at least 11 other South Carolina counties, including Greenville County, the largest district in the state, according to the lawsuit.
Meanwhile, the district had insurance coverage through the state Insurance Reserve Fund, as required by law. That fund provides low-cost insurance and uses no agents, brokers or advertising.
The district's coverage through the IRF included automobiles, school buses, all-risk coverage on buildings and contents, builders' risk, data processing equipment and media, and inland marine equipment, such as lawnmowers and golf carts.
At the suggestion of Knauff and Hub, Thomas purchased additional policies for builder's risk, student accident, crime, cyber policies, general liability, directors and officers liability for a district nonprofit; inland marine coverage including terrorism coverage; and errors and omissions coverage for school board members.
Many policies had minimal claims or no claims at all.
From 2001 to 2012, the district paid Knauff more than $7.4 million for policies and almost $2 million for consulting and broker's fees, 26 percent of the premiums. From 2012 to 2016, the district paid Hub $3.4 million for premiums and $1.4 million in fees, 41 percent of the premiums.
The total premiums were $10.8 million, and fees were more than $3.3 million.
Thomas pleaded guilty Tuesday to 20 federal charges, half of which were for wire fraud, which involved the kickbacks. He faces up to 300 years in prison and more than $5 million in fines on those charges, which are felonies.
The government will ask for a reduced sentence if Thomas' cooperation aids in the prosecution of another person, according to Thomas' plea agreement.
Also in early December, an additional 15 counts of embezzlement and forgery from a state grand jury were unsealed. In state court, Thomas faces up to 135 years in prison.
District lawyer Josh Whitley said this week he expects additional indictments in the case, and he also expects additional lawsuits.
Hub was closed Thursday due to the recent snow storm, according to a recording.