Tuesday, December 21, 1999

Insurer charged
in PGMA collapse

Metcalf sees negligence and
fraud behind the failure, but
another suit targets the
state insurance boss

By Ian Lind


State Insurance Commissioner Wayne Metcalf has filed civil fraud and negligence charges against former island businessman Peter Posang Wong, founder of Pacific Group Medical Association, along with his wife, mother, and 21 other individuals or businesses alleged to be responsible for the insurer's collapse.

But Metcalf is the target of a separate whistleblower's suit by fraud investigator Thomas Hayes, who says he was fired after concluding that insurance regulators are also liable because they took so long to take action against the insolvent health insurer.

PGMA, which once provided health insurance coverage to more than 26,000 individuals, left an estimated $26 million in debts outstanding when it was declared insolvent and seized by insurance regulators in March 1997.

The insurance commissioner's 75-count civil suit seeks to recover about $20 million it says was "fraudulently and deceptively" transferred from PGMA to companies controlled by Wong or to individuals linked to him.


The lawsuit was filed in First Circuit Court by Honolulu attorney Wendell H. Fuji on behalf of Metcalf, who is the court-appointed liquidator of PGMA's remaining assets.

Many of the allegations have surfaced in court during liquidation proceedings, or in prior suits against the officers and directors of PGMA, but this is the first lawsuit aimed directly at Peter Wong.

Wong, now living and working in California, has not responded to repeated requests for comment on PGMA, and did not respond to a detailed message left at his office yesterday about this case. In prior court documents, he has denied any wrongdoing.

The suit alleges Wong committed unfair and deceptive trade practices by marketing and selling PGMA health insurance plans when the company did not have the financial resources to pay claims. In addition, Wong is charged with fraud, conspiracy to commit fraud, and fraudulent transfer for allegedly benefiting from funds transferred through a complex network of related companies and accounts.

The suit seeks to recover funds transferred to 11 companies controlled by Wong, including Toral-Vahey & Associates, the Southern California insurance agency where Peter and Susan Wong are now partners and key executives.

Two former in-house accountants, along with PGMA's former external auditors and consultants, are charged with negligence or breach of contract for failing to protect PGMA's financial interests.


Among those named in the suit are two companies owned by Robin H. Sabatini, daughter of UPW state director Gary Rodrigues, whose union had an agreement to provide PGMA policies as options for its members.

According to the suit, Sabatini "received monies from PGMA classified as consulting fees," but "provided no services and did not intend to provide any services in return for the monies transferred." The suit demands that Sabatini refund all funds received from PGMA.

Sabatini's attorney, Richard L. Hoke Jr., said last month that records of all transactions with PGMA had been turned over to a federal grand jury several months earlier, although Sabatini herself is not a subject of the inquiry.

Hayes, an experienced financial investigator who has been involved in many of Hawaii's largest fraud cases, says he was abruptly terminated without explanation at the end of August by James Mzyk, chief examiner for the Insurance Division and special deputy to Metcalf in the PGMA case.

Hayes alleges he was later told that the move was an effort by Metcalf to save money, but says it happened soon after he told Mzyk that "major claims" can be made on behalf of PGMA's creditors against the insurance commissioner.

Metcalf was insurance commissioner during 1994-1997 when PGMA became insolvent.

Hayes' suit claims that "the true reason for his termination was to rid the PGMA Liquidating Trust of personnel who supported asserting claims on behalf of PGMA creditors against the Insurance Commissioner."

Fuji denied there is any basis for claims against regulators. The Insurance Division "followed the law at all times" and relied on the advice of professional accountants, actuaries and examiners "who at no time indicated that there were any significant problems with the company," Fuji said.

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