Insurance commissioner: Bail bond company operated in cash, failed audit

Published: Nov. 8, 2017 at 6:59 PM EST|Updated: Nov. 8, 2017 at 8:41 PM EST
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RALEIGH, NC (WBTV) - Newly unsealed court documents are providing a detailed accounting of why the North Carolina Department of Insurance moved to shut down a bail bond surety company in September.

The Department of Insurance took control of Cannon Surety Company in late September. The company is based in Greensboro but had bail bondsmen across North Carolina that issued bail bonds backed by Cannon.

Bail bondsmen who issued bonds backed by Cannon received an email from the North Carolina Department of Insurance on September 28 saying the company had been shut down.

"Surety Bondsman are prohibited from writing any bonds on Cannon Surety, LLC powers," the email said. "Surety bondsman are instructed to immediately submit weekly reports along with any unused powers and all premiums due to Cannon Surety, LLC to the North Carolina Department of Insurance."

NCDOI's action came one day after a judge signed a seizure order requested by the department. The petition for such an order and the order itself had been under seal until a judge ordered the documents be made public on November 7, 2017.

Financial review raised red flags

The department said its enforcement action against Cannon Surety began after its staff performed an examination—similar to an audit—of the company's finances.

"The examinations revealed that Respondent uses a primitive cash-based accounting system consisting of using the bank statements for its operating account to track deposited funds and withdrawn funds," NCDOI's petition said. "Deposited funds are deemed by Respondent to be revenue and withdrawn funds are deemed by respondent to be expenses. Respondent uses an accounting software program called 'QuickBooks' but the information uploaded to that software is merely the information from the bank statements."

The petition said cash payments made to the company, which are not deposited into the bank account, are not recorded in QuickBooks.

DOCUMENT: Click here to read NCDOI's seizure petition

As a result, the complaint said, Cannon Surety "cannot report an accurate and true statement of all its assets and liabilities as required in its Annual Report."

In addition, the department claimed, the company made withdrawals from the company's account using a debit card to make purchases or by taking cash from the ATM without keeping receipts of such transactions.

"Based on a review of the bank statements for the first three months of 2017, the company had one overdraft in each of those first three months of 2017. Thus, the Company failed to monitor cash flow needs on a daily basis to avoid insufficient funds, checks and overdraft fees," the department's complaint said.

In response to a request for comment for this story, Mark Bibbs, an attorney for Cannon Surety, pointed to allegations included in the counterclaim filed by the company against NCDOI in response to its seizure petition.

In its counterclaim, Cannon Surety claims NCDOI failed to advise the company of any problems the department found from its review of the company's finances.

"An examination was conducted in June of 2016 for which Cannon paid the expenses of about $5,000.00. After over 15 months, NO FEEDBACK WHATSOEVER from this examination was ever been (sic) shared with Cannon principals, in direct violation of N.C.G.S. 58-2-131(L) and N.C.G.S. 58-2-132(B). A second examination was conducted by the DOI in 2017, for which Cannon paid $8000.00 (sic). Again, no results, good or bad, have ever been shared with Cannon principals, all in direct violation of N.C.G.S. 58-2-131(L) and N.C.G.S. 58-2-132(B)," Cannon said in its counterclaim.

Company failed audit, filed late reports

In addition to questionable accounting and money management, the department's petition against Cannon Surety also outlined a series of failed audits and missed financial reports.

According to the petition, the accounting firm that performed Cannon Surety's audit of the company's 2015 financial statements could not confirm the accuracy of the company's financial statements and issued an audit disclaimer regarding the company's financial condition.

"The auditor's disclaimer raises severe concerns about Respondent's financial condition," the petition said.

The petition claims Cannon has not kept a full and correct record of its business as required by law.

In addition to failing its audit for 2015 financial statements, NCDOI said Cannon Surety also failed to filed required annual reports on time.

Document: Read Cannon Surety's response and counterclaim against NCDOI

The company is required to file its annual audit and its statement of actuarial opinion by June 30 of each year. But NCDOI's petition said the company filed its required reports for 2015 three months late and failed to file its required reports for 2016.

Cannon Surety, in its counterclaim against NCDOI, dismisses the failed audits and claims the company hired to perform the audit stopped its work and accuses the company of providing sensitive financial information to Cannon's competitors.

Court filing: Cannon unable to cover millions in liabilities

NCDOI wrote in its petition that Cannon surety did not appear to have enough cash on hand to cover the amount of bonds that had been written by bail bondsmen on the company's behalf.

"Respondent has not demonstrated that it has sufficient assets to meet its liabilities," the department claimed in its court filing.

In fact, the department told a judge Cannon Surety had total exposure of $79,538,431.08 on bonds written by its bail agents.

The department wrote that Cannon's "continued operation is hazardous to its policyholders, creditors, or the general public."

As an example, the petition highlights one instance when Cannon Surety failed to pay a required bond forfeiture within 60 days, as required by law.

According to the petition, the company was supposed to pay at $10,000 forfeiture after a defendant failed to appear for court.

When the company failed to pay the bond, the petition said, it entered into a consent order that would allow Cannon Surety to pay the $10,000 in two installments in April and May. But, the complaint said, Cannon Surety did not pay the forfeiture until July.

The petition highlights a second example where Cannon Surety was unable to pay a $50,000 forfeiture obligation in Cabarrus County within the time required by law.

"Respondent's inability during the year 2017 to make good on its obligation to the State on two bonds—a $10,000 bond and a $50,000 bond—which are mere fractions of its bond liabilities of more than $79,000,000 without entering into installment payment plans is evidence that Respondent has failed to make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by its contractual obligations and related expenses, and that it will experience in the foreseeable future cash flow or liquidity problems," the petition said.

Cannon Surety attorney sent confidential documents

The order to unseal the records came after WBTV discovered an attorney for Cannon Surety had sent the sealed seizure petition and seizure order to Guilford County Superior Court Judge John O. Craig, who was, at the time, presiding over a separate civil lawsuit between Cannon Surety and an investor in the company.

Emails provided by Craig in response to a public records request from WBTV show Bibbs, the attorney who represents Cannon in both its NCDOI enforcement action and in the separate civil case, unilaterally emailed the sealed documents to Craig through an administrative staffer at the Guilford County courthouse.

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"Please forward these document pdf's to Judge Craig. I am not copying opposing counsel as there are confidential as well," Bibbs wrote.

In total, records provided by Craig show Bibbs sent three emails containing sealed documents from the NCDOI enforcement action.

By email late Wednesday, Bibbs told WBTV he forwarded the documents to Craig as part of a discussion regarding whether a hearing should be held in the civil case over which Craig was presiding.

Bibbs forwarded several emails to WBTV in which the seizure order from the NCDOI action is referenced but could not provide a protective order or other order from Craig that would allow for the sharing of confidential documents.

In one of several emails to WBTV sent in response to a request for comment for this story, Bibbs took issue with the fact that the station was able to obtain the documents.

"How did you obtain a copy of a confidential email, that was clearly marked 'confidential' in the body of the email, that an attorney sent to a Superior Court Judge?" Bibbs asked a reporter who obtained the emails through a public records request. "You should not be in possession of that information. That is problematic in and of itself."

In a separate, later, email, Bibbs further explained his decision to share the confidential documents with Craig without a protective order or other method to keep the documents confidential.

"(Craig's) jurisdiction and authority to preside over a matter in the Cannon case was at issue. Therefore it was necessary for him to review the seizure order to determine if his Court could proceed. Absent driving to Greensboro and taking it to him to read, a confidential email to his office was the alternative," Bibbs said.

Company, lawyer have had relationship with past and present Insurance Commissioners

WBTV began investigating Cannon Surety last year as part of an inquiry involving its attorney, Mark Bibbs, and his practice of lobbying on behalf of the company without being registered.

Among the things uncovered by WBTV were frequent text messages between Bibbs and then-Insurance Commissioner Wayne Goodwin.

In one instance, Bibbs sent a private letter to Goodwin's house that, Bibbs wrote, he sent to Goodwin's personal residence in hopes of circumventing the North Carolina Public Records Act.

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At the same time, Robert Brawley, a former state lawmaker who invested in Cannon Surety, questioned Goodwin's lack of action in an interview with WBTV in early August 2016.

Specifically, Brawley had tried to question why the company's leadership included a man who was barred from operating as a bail bondsman in North Carolina.

North Carolina law forbids any bail bonds company from working with someone who is not able to obtain a license.

"I do think the Department of Insurance is very slack, they're not doing their job and they are hurting the public in North Carolina," Brawley said at the time.

Goodwin, through a spokesman, declined to comment for the August 2016 story. A different spokesman declined, on Goodwin's behalf, to comment for this article.

In its counterclaim against NCDOI, Cannon Surety accuses Causey, the current Insurance Commissioner, of seeking to shut the company down as a political favor to those who donated to the Commissioner's campaign.

"This is not a case of a failing company being shut down to protect the public – this is a case of a successful company being shut down to appease its competitors, detractors and financial contributors of Commissioner Mike Causey," the counterclaim said.

"It is an egregious case of incestuous political corruption involving an all to (sic) familiar criminal scheme of 'Pay to Play', (sic) which runs rampant throughout the DOI, orchestrated and directed by Commissioner Mike Causey himself."

Despite multiple emails in response to a request for comment Wednesday afternoon, Bibbs did not address how his client's assertion of a 'pay to play' scandal squared with Cannon Surety's attempt to host a fundraiser for Causey's campaign late last year.

In December 2016, WBTV uncovered efforts by Cannon Surety to host a fundraiser for newly-elected Insurance Commissioner Mike Causey, who beat Goodwin in the 2016 election.

North Carolina law prohibits corporations from making contributions to or raising money for political candidates.

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WBTV obtained a copy of an invitation to a fundraiser being hosted by Cannon Surety to raise money for Causey's campaign.

The fundraiser was canceled after WBTV's story. This April, Cannon Surety forfeited $513.29 to the North Carolina State Board of Elections. That amount represented the costs Cannon Surety incurred to print invitations to the event, according to the board of elections.

In December, Causey claimed to be unaware of the fundraiser.

This article has been updated to include responses provided by an attorney for Cannon Surety.

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