Insurer diverted funds,
says investigator

Fraud is deemed likely in the collapse
of the Pacific Group Medical Association

By Ian Lind
Star-Bulletin

Fraud and diversion of funds were likely contributors to the collapse of Pacific Group Medical Association last year, according to Thomas E. Hayes, special administrative assistant to Insurance Commissioner Rey Graulty.

Hayes said funds were diverted from the nonprofit insurer into a maze of for-profit companies controlled by PGMA insiders.

Graulty is court-appointed liquidator of PGMA, and Hayes is directing the search for the nonprofit insurer's remaining assets.

Hayes said he has identified 45 different bank accounts but so far only has complete records for two of them.

"The money circulated back and forth (between the companies) without any business purpose," said Hayes, an experienced fraud investigator who has been court-appointed trustee in several high-profile cases involving complex business failures.

"We don't know how much of the loss is due to poor underwriting and how much was siphoned off for illegal or unauthorized purposes," he said.

PGMA, once a fast-growing firm that offered low-priced health insurance plans, ran into financial problems and was seized by the state in March 1997.

PGMA members, including thousands signed up through public-employee unions, could eventually get hit with the insurer's share of medical bills that remained unpaid when the state stepped in.

Attorneys for two groups hit by the insurer's collapse also suspect fraud.

Paul Schraff and Ryan Dwyer, attorneys for the Voluntary Employees' Benefit Association of Hawaii, have alleged in court proceedings that PGMA "was nothing short of an outright fraud" for months before the state took it over.

"By then, PGMA was no more than a Ponzi scheme, using 'current' dues to pay old claims with no prospect at all of every paying 'current' claims," they charged.

Honolulu attorney Robert Kawamura, who represents medical providers owed money by PGMA, told the Star-Bulletin his preliminary investigation points to the diversion of funds.

"We're talking about millions of dollars. That kind of money doesn't disappear overnight," Kawamura said. "It's got to be somewhere, and we believe it's tied up in real estate and other companies in which these people invested."

Graulty and Hayes are in the process of tracing all funds that flowed out of PGMA's accounts to determine what can be recovered.

Records have already been subpoenaed from individuals and businesses in Hawaii and California.

Graulty recently sued officers and directors of PGMA, alleging they failed to prevent mismanagement, misappropriation and other wrongdoing by corporate officials.

Graulty said he is now preparing legal action against former Honolulu real estate broker and insurance executive Peter Po Sang Wong, a key figure in PGMA's complex financial structure.

Wong, who is now living and working in California, did not return calls from the Star-Bulletin.

Wong was not an officer of PGMA, but, according to a 1994 examination of the company by state regulators, he controlled PGMA's key underwriting and marketing decisions through ownership of Pacific Equity Growth & Management, the association's sole marketing agent.

Wong was the managing general agent and plan administrator for PGMA and coordinated, authorized and reviewed "most of the association's major transactions and contracts" along with its marketing efforts, the report said.

Hayes said many of PGMA's officers and directors were employees or sales agents working for Wong.

Hayes is attempting to trace funds that flowed from the association to PEGM, and then to companies controlled by Wong or linked through overlapping officers and directors.

The companies include PGMA Inc., a for-profit company that shared the initials of the nonprofit insurer; Pacific Equity Factors; Pacific Employee Leasing Inc.; Pacific Equity Printers Inc.; Pacific Benefit Services Inc.; and Po Sang Corp., a Cayman Islands company.

One transaction disclosed in court records involves a check for $431,974.08 dated Aug. 4, 1994, from the PGMA Disability Benefit Fund to Pacific Equity Growth & Management Inc. Bank notations on the canceled check show it was exchanged for a cashiers check.

The cashiers check is believed to have wound up in an account of Ling Fong Wong, Peter Wong's mother, and then went into an escrow account, Hayes said.

Real estate records show Ling Fong Wong purchased a $1.75 million home on Hawaii Loa Ridge at that time which was later listed in state business registration records as Peter Wong's residence.

Unpaid bills left in the wake of the insurer's collapse are now expected to reach $18 million, substantially higher than earlier estimates, according to recent accountings disclosed in court. Cash on hand at the end of November 1997 amounted to just $1.5 million, the records show.

A court injunction currently blocks medical providers from trying to collect PGMA's unpaid bills directly from individual patients. A ruling on whether patients will have to pay the unpaid bills is not expected until later.

---

Company owned by UPW
head's daughter subpoenaed

By Ian Lind
Star-Bulletin

A company owned by the daughter of labor leader Gary Rodrigues has been hit with a subpoena for records as part of the probe into the collapse of Pacific Group Medical Association.

The subpoena seeks records of all payments or transactions between PGMA or related companies and Four Winds RSK Inc., a Kauai consulting and marketing company, court records show.

Four Winds was incorporated in February 1996 by Robin H. Rodrigues, according to state business registration records. Rodrigues, who is registered as the company's sole officer, is the daughter of United Public Workers head Gary W. Rodrigues.

Robin Rodrigues did not respond to messages seeking comment that were left at her Kauai home and business.

The senior Rodrigues' union, which represents blue-collar state and county workers, offered PGMA health insurance to its members as an alternative to the plans reviewed and approved by the state Public Employees Health Fund.

Members of the UPW and the Hawaii Government Employees Association, which represents white-collar workers, accounted for nearly half of PGMA's peak enrollment of 28,000. The unions pulled their members out of PGMA several months before the state's takeover.

Thomas E. Hayes, special assistant to Insurance Commissioner Rey Graulty in his capacity as liquidator of PGMA, said the Four Winds' transactions are under investigation but declined further comment.

Gary Rodrigues said the company's records had been subpoenaed along with those of other companies appearing on PGMA's books.

Rodrigues said he is actively cooperating with Graulty's investigation and that he believes the interests of UPW members will be protected.

Rodrigues declined to comment further, citing litigation.