Hundreds of victims of what appears to be the largest Ponzi scheme in Nebraska history feel they’ve been victimized again, this time by the “good guys.”

Nearly 18 months after Nebraska Attorney General Jon Bruning said the $125 million scheme was “shocking and disturbing” no one’s been charged with a crime and investors haven’t seen a dime. Critics of the state and federal government’s handling of the case tell Nebraska Watchdog that if someone was going to be prosecuted it would have happened by now. Those same critics, including one Nebraskan who stands to lose nearly $500,000, also wonder if state regulators were negligent and dropped the ball.

Nebraska Watchdog spoke with Assistant U.S Attorney Jan Sharp of Omaha who says the case involving First Americans Insurance Service of Grand Island is still under investigation. At the same time federal sources close to the case tell Nebraska Watchdog that prosecutors are “a long way off from making a decision” in the case.

On January 20, 2009 Nebraska Attorney General Jon Bruning announced that First Americans Insurance Service of Grand Island was under investigation by the Nebraska State Patrol. Several months later the case was turned over to the FBI.

On January 12, 2009 First Americans filed for Chapter 11 bankruptcy claiming between $100 million and $500 million in liabilities. Shortly after that state officials revoked the Nebraska insurance licenses of three of the firm’s top officers: President Stella Levea, Vice President James Masat, and Vice-President Kenneth Mottin.

According to U.S. Bankruptcy Court records at least 285 Nebraskans listed investments in First Americans; 220 were from the western part of the state, 49 from the Lincoln area and 16 from the Omaha area. The case has languished in Bankruptcy Court with little or no action for several months. 

First Americans is suspected of running a Ponzi scheme, a scam in which people are persuaded to invest in a fraudulent operation that promises unusually high returns. The early investors are paid their returns out of money put in by later investors.

Arlene Osterloh of Waterloo, Nebraska, who invested $100,000, says the case is “discouraging.” According to Osterloh she lost her investment partly because the State of Nebraska Banking and Finance Department failed to do its job.

According to Banking Department records on August 17, 2007, 17 months before First Americans declared bankruptcy, the company entered into a voluntary agreement with the state.

Last year Banking Department Director John Munn said the 2007 agreement found First Americans promising to slow down, “They would not sell to more than 15 or solicit notes from more than 15 new investors in a particular year.”

Munn said First Americans also agreed to explain to any new investors that, “This was a highly speculative investment.” Munn said he’s not sure if the company ever told investors about the greater financial risks.

Osterloh said officials with First Americans never mentioned the risks to her.

Asked if his department dropped the ball Munn said, “I don’t think so; we took the company at its word.”

Critics of the Banking Department’s handling of the case tell Nebraska Watchdog that even if Banking Department officials were negligent it is unlikely investors would receive any money from the State of Nebraska. According to legal experts the Banking Department has what is known as “sovereign immunity” making lawsuits against the Department nearly impossible.

Authorities have not said what happened to the money.

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Reported by Joe Jordan, joe@nebraskawatchdog.org