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State goes after
$2.6 million
paid out by
defunct PGMA

Metcalf says the funds went
to insiders before the health
insurance firm collapsed
in March 1997

---

By Ian Lind
Star-Bulletin

State Insurance Commissioner Wayne Metcalf is seeking to recover more than $2.6 million paid out by Pacific Group Medical Association in the four months prior to the health insurer's collapse and takeover by regulators in March 1997.

The payments to a small group of PGMA insiders were made while the insurer was insolvent or nearly insolvent, and PGMA received no consideration or services in return for the money, Metcalf charged in an amended lawsuit filed last month against the company's founder, along with officers, directors and several outside consultants.

Metcalf is acting as the court-appointed liquidator of PGMA, and has filed a series of lawsuits aimed at tracking down and recovering assets that can be used to pay off outstanding claims against the company, previously estimated between $19 million and $26 million.

The nonprofit insurer once provided health coverage for more than 26,000 people, including members of the state's two largest public employee unions, Hawaii Government Employees Association and United Public Workers.

Unable to pay claims

The company was shut down by insurance regulators after it was determined to be insolvent and unable to pay accumulated claims. PGMA business was then sold to Queen's Health Systems, which took over coverage of its remaining members.

PGMA's failure was caused, at least in part, by the fraudulent transfer of millions of dollars from company accounts, according to a analysis by Thomas Hayes, a financial investigator who worked for Metcalf. Metcalf's amended lawsuit seeks repayment of nearly $2.3 million from PGMA founder Peter Po Sang Wong, members of his family and several related companies controlled by Wong.

The amount represents more than half of the $4.3 million that Hayes alleges was siphoned off by Wong, court records show. The largest amounts are $1,233,592 allegedly transferred to Pacific Equity Factors, and $410,591 that went to PGMA Inc., both companies headed by Wong.

Additional amounts included $73,952 transferred to Nevada Equity Growth and Management Inc., headed by Wong's wife, Susan, and $95,000 transferred to Toral-Vahey & Associates, a California insurance agency the Wongs joined after leaving Hawaii in January 1997.

Metcalf's suit is seeking to recover $179,383 paid to Wong; $70,009 that went to Susan Wong, and $195,673 transferred to Wong's mother, Ling Fong Wong, court records show.

In each case, Metcalf charges the transfers were fraudulent and resulted in unjust enrichment of the beneficiaries.

Wong could not be reached for comment.

He has not commented publicly since PGMA collapsed nearly four years ago, although in court documents he has denied any wrongdoing.

Now with another firm

It isn't known whether any of Wong's Hawaii-based companies have assets that could cover Metcalf's claims, or whether Wong would be personally liable for any eventual judgments against them.

Peter and Susan Wong are now associated with VEO Inc., an apparently successful spin-off of Toral-Vahey that provides employee benefit administration, payroll and other services via the Internet, according to company publications. The company has grown rapidly in the past year, signing deals with several large companies.

Metcalf's suit also seeks repayment of $210,637 paid to eight former officers, directors and key employees in the months before the state takeover of PGMA.

In addition, the suit names two Kauai companies, Four Winds RSK and Aulii Inc., both owned by Robin Sabatini, who is the daughter of UPW state director Gary Rodrigues.

Sabatini's companies reportedly received $146,361.32 as "consulting fees" while Rodrigues' union was urging its members to buy PGMA health coverage, but the companies "provided no services and did not intend to provide any services in return," the suit alleges. Metcalf is seeking to recover the full amount. A federal grand jury subpoenaed records of these transactions from Sabatini and UPW last year.

Watson Wyatt & Co., an international consulting firm, lost a bid this week to dismiss fraud claims resulting from its role as internal financial advisers to PGMA. Metcalf's suit charges that Watson Wyatt employees changed their own calculations in 1995 to reduce the amount PGMA was required to maintain in cash reserves under state insurance laws.