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BREAKING NEWS: Feds allege wire fraud, money laundering at Sommet

Federal agents this morning raided the Cool Springs Boulevard offices of the Sommet Group, based on a warrant which alleges the company's managing partner, L. Brian Whitfield, and others engaged in wire fraud, money laundering, theft or embezzlement from employee benefit plans, theft or embezzlement in connection with health care and false statements relating to health care matters, according to information provided by the U.S. Attorney's office.

On Tuesday morning, FBI agents, in cooperation with the U.S. Department of Labor and the Internal Revenue Service, executed search warrants at the company's Cool Springs offices at 725 Cool Springs Blvd., according to Keith Moses, assistant special agent in charge for the FBI.

In the affidavit in support of the search warrant, IRS Criminal Investigation Special Agent J. Ken Runkle alleges that Sommet, "principally through its managing partner L. Brian Whitfield — obtained client money by representing that it would disburse that money in proper amounts for the clients' taxes, payroll checks, health-insurance plan, retirement plan and other obligations...but recurring nonpayment and late payment of obligations, ongoing investigation by the Department of Labor, dwindling account balances and a growing number or resignations by high-ranking executives show that those represenations were not true, that client money was fraudulently misdirected and misappropriated, and that material facts regarding clients' employee- and health-benefit programs were concealed."

Runkle further alleges that by misrepresenting Sommet's solvency and general ability to pay obligations of its clients, Whitfield "continued to accept client funds and solicit new client funds for that purpose," breaching his fiduciary responsibility.

"Throughout the relevant time period, Whitfield routinely engaged in financial transactions with client money, knowing that the money was procured, in part, from his fraudulent misrepresentations or concealment of material facts," Runkle writes. "Those transactions involved large amounts, well in excess of $10,000. In addition, by paying certain claims — despite knowing that all claims could not be satisfied — Whitfield and others engaged in transactions that promoted the ongoing criminal activity and illusion of a legitimate, solvent company."

Runkle conducted several interviews with former Sommet employees and clients for the basis of the warrant, which sought to search not only Suite 320, which is identified as the company's offices, but also offices on the second floor of 725 Cool Springs Blvd., which housed the company's payroll operation and the personal offices of Whitfield; co-founder Ed Todd; David Jungquist, vice president of operations; Kathy Henry, processing; and Sommet Chief Compliance Officer Ben Purser, a retired FBI agent from Williamson County.

As late as June 29, agents interviewed a former executive with Sommet from July 2009 to May 2010 who "related that he was familiar with Sommet's business practices with respect to health-insurance issues, as well as the industry standard for such practices."

The witness gave his resignation in April 2010, according to the affidavit, "because Whitfield was 'screwing people' by not paying their legitimate health insurance claims," describing these actions "as 'robbing Peter to pay Paul.'"

This person told authorities that Sommet's business model was to charge below-market health premiums, "which were known to be insufficient to cover the amount of insurance claims generally predicted by the industry," Runkle writes, adding "Whitfield consciously chose to charge deflated rates to obtain a strategic advantage over Sommet's competitors."

According to the witness, Whitfield's plan was to supplement the insufficient premiums with a portion of revenue Sommet collected for performing its payroll fees, and that Whitfield believed this "would work as long as Sommet continued to bring in new clients and collect new payroll fees," which the company did in the witness' early tenure with the company. The problem was the payroll fees would only cover generally predicated amount of claims, without allowing the company to amass any reserves to protect against extra claims or to use for other purposes.

All client funds were deposited into one general account, according to the witness, which is not industry standard and the witness suggested to Whitfield in a September 2009 email that such an account should be created, but Whitfield did not and "the funding of health-insurance claims continued to come out of the general operating account," Runkle writes.

Sommet's former third-party administrator was Health First Solutions, which reported in early November 2009 that its relationship with Sommet become strained because the company "was regularly failing to provide funds for Health First to pay claims." The situation continued with Health First terminating its relationship with Sommet in late January 2010, with a projected $738,000 in outstanding claims remaining unpaid, according to the affidavit.

The witness helped Sommet located HCH, a potential replacement third-party administrator, who agreed to take on the role and assume the backlog of claims.

"(The witness) reported that despite the new administrator, Whitfield continued to refuse to authorise release of sufficient funds for legitimate claims," Runkle wrote. Because of the sudden change in third-party administrators, employees of at least one of Sommet's clients were "not able to use the insurance cards issued by the original third-party administrator (Health First Solutions)" and had not yet received cards from HCH, which terminated its relationship with Sommet on June 24, 2010, "for failure to provide funds."

Posted on: 7/6/2010


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