When Seven Peaks Resort owner Victor Borcherds purchased Southern American Insurance Co. in 1988 and moved the company to Utah, he may have violated Tennessee insurance laws.
Borcherds allegedly failed to notify Tennessee insurance officials of a change in financing plans prior to purchasing Southern American on March 25, 1988, from Tennessee-based The Crump Cos. Inc., according to Luann Grandinatti, director of information for the Tennessee Department of Commerce and Insurance.She said Tennessee officials approved a financing plan where Borcherds was to buy Southern American with a letter of credit from a London bank. However, Borcherds actually purchased the company for $5.75 million by redeeming 15,000 shares of the company's preferred stock and by taking out mortgages on the Provo Aquatic Park and the building that now houses the company's offices.
According to the Tennessee insurance code, a buyer must file an amended financial plan with the state anytime there is a change. Grandinatti said Borcherds failed to do so.
However, though confirming that Borcherds probably violated insurance codes, Grandinatti and Utah officials say it is unlikely that any action will be taken against him.
Also, Federal Bureau of Investigation officials in Memphis, Tenn., confirmed that they investigated the purchase of Southern American and turned the investigation results over to the U.S. attorney's office in Memphis. Officials there would not comment on the status of the case.
Borcherds denies any wrongdoing and said the FBI investigation was initiated by a disgruntled former employee. No FBI officials have interviewed Borcherds, and he is confident that nothing will come of the investigation.
Borcherds said the allegations are the result of miscommunication between him and officials at the Utah Department of Insurance.
Borcherds said Tennessee officials were not notified of the change because he thought he was buying a Utah company. He said he had an agreement with Hyrum Gentner, former chief examiner for the Utah Department of Insurance, to redomesticate Southern American to Utah prior to the sale's closing. Confusion resulted because the sale took place on a Friday and Gentner did not sign the redomestication papers until the next Tuesday, Borcherds said.
"The only mistake I made was not having someone in Gentner's office that day making sure he stamped the papers," Borcherds said.
Billy Lovelady, chief examiner for the Utah Department of Insurance, said even though Borcherds said he had an agreement with Gentner, the agreement was not official because it was not in writing.
"He could not redomesticate until he had control of the stock," Lovelady said. "So he was not buying a Utah company."
"They never give you anything in writing," Borcherds said. "I had total permission to do what I did. Hy knew exactly what I was doing."
Grandinatti said Tennessee likely will take no action against Borcherds because of the time lapse and the redomestication of Southern American to Utah.
"The most we would do is tell them that they can't write insurance here," said Grandinatti. Utah insurance officials also plan to take no action against Southern American.
"Until somebody comes forward and shows us that they were damaged and what damage has taken place, I don't see where we would take any action," Lovelady said.
Had they known about the change in Borcherds' financing plan, Grandinatti said, they still may have approved the sale.