Bail bonds company claims ‘incestuous political corruption’ after raid on its offices

A Greensboro bail bonds insurance company that was seized by the N.C. Department of Insurance in September is accusing Insurance Commissioner Mike Causey of taking campaign contributions from the company's competitors.

Cannon Surety's offices were raided on Sept. 28 and its assets were seized under a court order alleging shoddy bookkeeping practices and inadequate funds to cover potential bond forfeiture payments.

Cannon argues in court filings that agency investigators didn't follow a law requiring them to give the company an opportunity to address problems before the raid. The court filing says the enforcement action is "an egregious case of incestuous political corruption" because competitors of Cannon and its owner, Dallas McClain, donated to Causey's election campaign last year and later met with him.

Campaign finance records show a total of $7,000 in contributions from the competitors mentioned; Causey's campaign raised a total of about $150,000.

Cannon questions whether the competitors – the N.C. Bail Agents Association, its leaders, and Agent Associates Insurance CEO Mark Cartret – encouraged Causey to take action against Cannon.

The Department of Insurance declined to comment on the case "due to the confidential nature of this proceeding." But in a deposition transcript obtained by the N.C. Insider, Causey says he has only met once with the individuals named in the Cannon complaint, and that the company wasn't discussed during that meeting.

"We have met with most insurance company groups this year, and I don't recall anything specific," Causey told a lawyer for Cannon, according to the deposition transcript. "The only things that I can recall is they came to us saying, 'We're not here to ask you for anything other than we want you to enforce existing statutes. That's all we want, is to be fair and evenhanded and enforce the statutes.' So that's all I can recall from the whole meeting."

The Department of Insurance would not confirm Causey's statements in the deposition transcript. "The Wake Co. Superior Court entered a confidentiality order sealing ALL records in this case," agency attorneys said in an email. "As such, the parties are prohibited from releasing those records or discussing the details of the case." Cartret and the Bail Agents Association did not respond to inquiries from the Insider on Thursday.

In the court order authorizing the raid on Cannon's office, the Department of Insurance cites an audit that found the company was using a "primitive" accounting system and did not maintain adequate receipts for debit card withdrawals. It says the company "did not maintain adequate cash to meet its needs" in 2016 and had nearly $80 million in "potential exposure for bail bonds issued" at the end of June 2017. Insurers who back bail bonds are required to have at least $1.25 million on deposit with the Department of Insurance, but Cannon had only $985,000 on deposit in its 2016 annual report, court filings say.

Cannon Surety, however, says in court filings that it was "healthy, growing and maintains over $1.4 million in reserves" before the raid, and it wasn't given a hearing to respond to the audit findings or even notified of any problems. "Seizing the assets of an insurance company is a last resort in order to guide a company back into conformity, not the first step in correcting minor violations," the filing says.

Since the Department of Insurance took control, Cannon's attorney writes in the filings, the company has lost money in unresolved bond forfeitures – becoming ineligible to issue bonds in some counties – and lost affiliated bail bond agents to competing insurance companies. Investigators also seized items unrelated to the probe, including a coffee maker and a gold-plated bail bondsman badge. Six employees lost their jobs, and the 200 bail bond agents that contracted with the company were negatively impacted. "Years of hard work to create a business model, become profitable and build goodwill in the community have been utterly destroyed by Causey and DOI in one single maneuver," Cannon claims in the court filing.

To justify the seizure, the Department of Insurance cites a law allowing the action if investigators can prove that "the interests of policyholders, creditors or the public will be endangered by delay." Cannon says none of the agency's allegations rise to that level, and its filings argue the department violated a law that requires audit findings be sent to the business under investigation and that the business be given 30 days to respond.

A Wake County Superior Court judge has not yet ruled on the case or on Cannon's claims, and the case was moved Tuesday to the state's business court, which handles complex business matters.

The seizure of Cannon Surety is the latest development in a long-running feud among major players in North Carolina's bail bonds industry. Cannon's owner, McClain, has been fighting with his former business partner, former state legislator and gubernatorial candidate Robert Brawley, in a case that recently caused Brawley to be jailed for 15 days for contempt of court.

And Brawley and Cartret – the competing business owner – filed complaints against Cannon's attorney, Mark Bibbs, that have prompted an investigation by the N.C. Secretary of State's lobbying compliance division to determine whether Bibbs lobbied for Cannon without a valid registration.

McClain is also an instructor for N.C. Bail Academy, which competes with the N.C. Bail Agents Association in offering a required course for bail bond agents. The two entities have had a lengthy court battle over a 2012 law that the Bail Academy says would give the Agents Association a monopoly in providing the class. A judge's order in that case in March found credible evidence that the Department of Insurance and former Commissioner Wayne Goodwin had a "close and even incestuous relationship with the NCBAA."

This story was originally published November 3, 2017 at 12:32 PM with the headline "Bail bonds company claims ‘incestuous political corruption’ after raid on its offices."