Patriot National’s Chapter 11 bankruptcy
By Keith Larsen Reporter, South Florida Business Journal
Patriot National’s former CEO and majority shareholder, Steven Mariano, is alleging that actions by an auditor and three hedge funds led to the company’s demise.
Mariano’s lawyer, Bill Scherer of Conrad & Scherer, filed two lawsuits in Broward County Circuit Court on Monday. The litigation comes less than two months after Patriot National announced plans to file for Chapter 11 bankruptcy.
In one of the lawsuits, Mariano alleges that three investment funds sent Patriot National’s stock into a death spiral by short selling the company’s stock and then cornering the market by buying large quantities of it.
The resulting drop in share price led Florida regulators to deem Mariano-owned Guarantee Insurance Co. insolvent, since the insurance company owned a “significant number of Patriot National shares,” the lawsuit alleges.
The funds named in the lawsuit are Hudson Bay Master Fund Ltd, CVI Investments Inc. and Opportunity Master Fund, SPC. Mariano entered into a financing agreement with the funds to help Patriot National raise money.
According to the lawsuit, the lenders agreed to be long-term investors and not to short Patriot National’s stock. Instead, they allegedly drove down the stock price to increase the number of shares they could claim, giving them a larger ownership interest in the company.
Christopher Clark, a Latham & Watkins attorney who represents Hudson Bay, said the lawsuit claims are a “desperate attempt by a failed businessman to rehash allegations that have been completely discredited in federal proceedings in New York. We are confident that the Florida court will summarily reject Mr. Mariano’s false claims.”
Mariano’s lawyers also sued Guarantee Insurance’s auditor, BDO USA LLP and Ernie Saumell, a partner in BDO’s Miami office.
The lawsuit alleges that BDO did not raise issues about accounting practices and methods of operation that led regulators to liquidate the company.
“The company is going into bankruptcy … and the actions of the defendants are the proximate cause of the entire catastrophe,” Bill Scherer, managing partner of Conrad & Scherer, said in an interview with the Business Journal.
Patriot National, Inc. was founded in 2013 by Mariano as an insurance services company that provided outsourcing and technology services for workers compensation insurers. He resigned as CEO and chairman in July amid a falling stock price and shareholder lawsuits
The company announced it would restructure under Chapter 11 bankruptcy after its largest customer – Guarantee Insurance Co. – was deemed insolvent by Florida insurance regulators and placed into state receivership. Guarantee Insurance was also majority owned by Mariano.
Calls to BDO USA LLP and the other hedge funds were not immediately returned.
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