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Italian med-mal arbitration is 'rigged through bribery,' AmTrust alleges in RICO suit

AmTrust FinancialServices Inc. accused the CEO of the broker of Italian medical malpracticeinsurance business with which it has been engaged in a long-running dispute of conspiringwith an arbitrator to defraud it of "vast sums" through "corrupted"proceedings that have been "rigged through bribery."

In a complaint filed April 6 in the U.S. District Court for theSouthern District of New York, AmTrust claimed that a business intelligence firmit retained had uncovered evidence that Trust Risk Group SpA CEO Antonio Somma hadallegedly agreed to pay arbitration panel president Marco Lacchini a "bribeto ensure a favorable outcome" in an amount of 10% of the sums obtained fromthe U.S.-based insurer through the proceedings. The suit also includeda series of allegations regarding communications allegedly initiated by Somma tosenior AmTrust executives that the insurer characterized as "taunting and threatening."

Somma rejected those claims, saying in a statement to S&PGlobal Market Intelligence that they amounted to "the sixth attempt by AmTrustto seek to stop the arbitral proceedings provided in the contracts between the partiesby making false and mischievous allegations, whose only aim is not to fulfill theobligation of payment of the sums due to the TRG Group (€96 million) which — inpart — have been explicitly recognized through witness statement by the legal representativeof AmTrust Mr. Jeremy Cadle on Nov. 21, 2014 before the English Court." AnAmTrust spokeswoman said the company disagrees with Somma's characterization ofthat witness statement.

Trust Risk Group and a subsidiary in October 2014 AmTrust and unit in breach ofan exclusive agreement for the production of Italian medical liability businessin response to a dispute over the insurers' payment of advanced commissions. Thebrokers alleged that they were entitled to advanced commissions of approximately€95.8 million, but the AmTrust entities challenged that assertion. The AmTrust entitiesterminated their relationship with the brokers in a step that Trust Risk Group arguedwas improper; the brokers, in turn, initiated arbitration proceedings in Italy.AmTrust has since asserted that the agreements at issue are subject to English lawand the jurisdiction of English courts.

According to the April 6 complaint, the president of the Courtof Milan appointed Lacchini in February 2015 to serve as president of the panelspresiding over the arbitrations brought by both of the Trust Risk Group entities.AmTrust claims that "[a]t or near" his time of appointment, Lacchini hadagreed to receive from Somma the 10% bribe. The panel president casts the decisivevote in the event that the other two arbitrators vote in favor of their nominatingparties.

The Trust Risk Group parties submitted statements of claim tothe panels for commissions of more than €16 million and approximately €80 million,respectively, as well as damages for the alleged contract breaches in what AmTrustcriticized as the "fantastical" amounts of €1.25 billion and €1.65 billion.After AmTrust answered the statements of claim, the two panels issued orders inJuly 2015 that directed the expedited appointment of experts to evaluate the amountof commissions owed. One of the panels asked the experts to evaluate the amountof damages the Trade Risk Group unit had suffered in a step AmTrust considered tobe "extremely unusual" and indicative that the panel had been preparedto assess damages prior to considering liability.

"On information and belief, Somma arranged for Lacchinito procure these orders as a means to put increased pressure on AmTrust and [AmTrustEurope] by portending unfavorable developments for them in the arbitration,"the insurer alleged in the suit. "Somma also used the July Orders to attemptto exert downward pressure on AmTrust's publicly traded stock, as a means to furtherpressure AmTrust in relation to the Arbitrations."

The complaint referenced as alleged evidence to the latter pointa news release dated July 30, 2015, where Trust Risk Group announced that the EnglishCourt had "rejected … the attempt by AmTrust to prevent the ongoing arbitrationin Milan and to which Trust Risk Group claimed a request for compensation of morethan [€2 billion]" and that the arbitration panels had appointed "technicalconsultants to quantify the size of the amounts requested for commission and damages."The release led an unnamed Compass Point Research and Trading analyst to contactAmTrust to ask whether the insurer had lost the arbitration, according to the complaint.The suit cited certain other examples of alleged attempts by Somma to "usethe media against AmTrust."

It also made reference to a series of text messages allegedlysent by Somma to AmTrust President and CEO Barry Zyskind and Executive Vice PresidentAdam Karkowsky.

On Sept. 28, 2015, Somma allegedly texted the following to Karkowsky:"Hi! I saw you're investing a lot of monies! Better keep some, you may needthem in the future! Wish you a great week ciao." Two months later, and onceagain in a similar message allegedly sent in January 2016, the Trust Risk GroupCEO allegedly texted Karkowsky, "Hello Adam, how are you? I noticed with greatregret that AmTrust stock is lowering a lot. Do I have to worry about the moniesyou have to give me? All my best to you and your family." Somma then allegedlyalso asked Zyskind about "the monies" in a subsequent text with similarwording.

Following AmTrust's fourth-quarter 2015 earnings Feb. 10, Somma allegedly texted Zyskindagain, saying, "My friend I saw that despite the excellent results, the sharesof your company are not doing so well. I am very sorry about that. Do you need help?If so please do not hesitate to contact me, regards Antonio."

AmTrust said it retained the business intelligence firm around"this same time period" after having become suspicious about "theunusual conduct" of the arbitrations and Somma's "aggressive behavior."

The firm allegedly met with Somma, using the pretext of introducinghim to Chinese investors interested in entering the Italian insurance market. Duringa February meeting that was allegedly voice recorded, the private investigatorsasked Somma about his business relationship and ongoing dispute with AmTrust. Sommaallegedly asserted that AmTrust had plotted to benefit from his knowledge of themarket, then "discard" him.

"He then told the Investigators that the dispute would beresolved on Nov. 8, 2016 and that the result would be a decision awarding him [€400million]," AmTrust alleged in the complaint in recounting the meeting. Whenasked about the source of his confidence regarding that outcome, Somma allegedlyresponded that he has control over the proceedings.

"Later in the conversation, Somma reiterated that he hadan unusual relationship with the president of the … Arbitrations," AmTrustalleged in the suit. "He also predicted that AmTrust would attempt to settlewith him because, as a public company, it would be concerned about the prospectof a [€400 million or €500 million] judgment against it. Somma stated he would bewilling to settle with AmTrust for [€200 million to €250 million]." When oneof the investigators asked Somma how much he had paid the arbitration panel's president,AmTrust alleged in the suit that the Trust Risk Group CEO "responded by requestinga piece of paper and, provided one, wrote the figure '10%.'"

The suit also alleged that the business intelligence firm hadarranged a meeting with Lacchini under different pretenses. During the meeting,the investigator discussed with Lacchini the possibility of ensuring the resultof arbitration proceedings, and Lacchini allegedly responded, "I can give yousome assurance in domestic arbitrations." AmTrust asserted from additionalcommentary on the topic allegedly made by Lacchini during the meeting regardinghis role in a domestic arbitration about insurance that he had been "boastingthat he had been bribed to deliver a result … for Somma." AmTrust further allegedthat it had separately received "independent evidence of Somma's bribery ofLacchini" from a consultant, who had cited statements provided to him by "twoinsurance professionals close to Somma."

The AmTrust entities have filed a petition to the president ofthe Court of Milan for Lacchini's dismissal, and they stated that the arbitrationshave been formally suspended.

The suit brings claims under the Racketeer Influenced and CorruptOrganizations Act against both defendants, alleging that they had engaged in a schemeto "to defraud and obtain money from AmTrust by false pretenses" throughthe arbitration process.

"The conduct of Defendants' scheme was continuous, escalatingand of substantial duration and would have continued well beyond two years had itnot been discovered and interrupted by AmTrust," the company alleged. "Further,Lacchini's admitted history of corrupting arbitrations evidences that Defendants'criminal conduct is of a continuing nature."

The suit also includes claims of racketeering conspiracy againstSomma and Lacchini and tortious interference against Somma. AmTrust is seeking anunspecified amount of damages to include its costs of participation in the arbitrationand compensation for the reputational injury suffered from the alleged efforts ofSomma and Lacchini to "drive down" the insurer's stock price and an unspecifiedamount of punitive damages.

"AmTrust stands behind the allegations made in its complaintand intends to prosecute its claims against Antonio Somma and Marco Lacchini tothe fullest extent possible," the company said in a statement, which also disclosedthat it had recently commenced litigation against the two individuals in England.AmTrust added that it would not provide further details on pending court mattersor arbitrations.

In its most recent annual report on Form , AmTrust said it believes the allegationsraised by Trust Risk Group in the arbitration proceedings to be unfounded, and itpledged to vigorously pursue its defenses. The company noted in the filing thatit "cannot reasonably estimate the potential range of loss, if any."