Artex Captive Insurance Strategies Fraud and RICO Class Action

A group of companies and individuals, the complaint for this class action alleges, duped people into taking part in an illegal tax-shelter scheme it calls the Captive Insurance Strategies. The complaint claims that the group violated the Racketeer Influenced and Corrupt Organizations (RICO) Act and committed fraud, among other things.

The class for this action is all persons who, between January 1, 2005 and the present, were assessed back taxes, penalties, or interest by the IRS as a result of their direct or indirect involvement in a captive insurance strategy from Artex, Tribeca, and/or Gallagher or its predecessors.

Early on, the complaint notes, “Premiums paid for insurance are deductible as ordinary and necessary business expenses…. But amounts set aside in a loss reserve as self-insurance are not.” 

In captive insurance transactions, however, the insureds and insurer are related. The premiums are still deductible as long as those involved comply with a variety laws and requirements, for both insurance and tax purposes. As the complaint notes, “A captive cannot merely serve as a vehicle to provide a business expense in pursuit of a tax deduction.” It must actually qualify as insurance, with “bona fide risk transfer and risk distribution.”

Defendant Artex Risk Solutions, Inc. is a licensed insurance company. It is a subsidiary of another defendant, Arthur J. Gallagher & Co., that purportedly designed it to advise, implement, and manage captive insurance strategies. In 2010, Gallagher acquired another captive company, TSA Holdings, LLC that also engaged in captive insurance strategies. 

According to the complaint, one arm of the scheme worked like this: Artex helped business owners to form one or more captives, then would manage all the captive’s operations. A company called Provincial, indirectly owned by another defendant, provided the insurance policies, which had very complex provisions. These policies did not in reality meet the requirements for real insurance for the purposes of tax law. 

Artex performed some of Provincial’s operations and collected the premiums, which, in a circular action, were eventually paid to Artex. It even helped customers prepare tax returns. For more details on this or other parts of the scheme, see the detailed 140-page complaint, linked below.

When the IRS audited a customer called Spectra and challenged its tax deductions for 2012 through 2014, Artex helped defend the company in court. Unfortunately, Spectra was forced to settle and pay additional taxes and penalties in 2017. The IRS also audited other customers of Artex’s captive insurance strategies, and they were also forced to pay.

Artex’s 2017 filings admit that it is under investigation by the Internal Revenue Service (IRS) for its captive insurance activities. The complaint alleges a conspiracy between the various defendants to provide customers with negligent and fraudulent advice and services. According to the complaint, they claimed to provide the customers with real insurance as well as tax advantages, but none of those claims were true. 

Article Type: Lawsuit
Topic: Consumer
Tags: Fraud, Insurance, RICO laws, Tax