CIC Services Sues Former Client For Fraud

CIC Services recently filed a lawsuit in the Circuit Court for Knox County, Tennessee against a former client, SRM Group, Inc., it’s owner, Suresh Prabhu, and two related captive insurance companies formerly managed by CIC Services. The lawsuit alleges breach of contract and fraud and seeks both compensatory and punitive damages.

The lawsuit comes after a year of arbitration between the same parties in which each and every claim against CIC Services, LLC and related parties were dismissed by the arbitrator. “The arbitrator ruled that the claims against CIC Services and its agents were unfounded based in part upon the fact that Mr. Prahbu and SRM Group misrepresented their intentions in forming and operating the captive insurance companies in question”, said Sean King, General Counsel for CIC Services, LLC.

Specifically, the arbitrator found that, despite making explicit written representations and warranties in CIC Services’ agreement to the contrary, and despite CIC Services having warned Mr. Prabhu explicitly and repeatedly of the need to operate the captives as legitimate insurance companies, Mr. Prabhu never actually intended to operate his captive insurance companies as insurers and even “resisted” CIC Services’ good faith attempts to do so. The arbitrator concluded:

“If there is one fact that is absolutely beyond dispute in this proceeding it is that Mr. Prabhu…in no meaningful way…intend[ed] to operate either [captive insurance company] as an insurer.”

And the arbitrator further concluded:

“[E]ven though Mr. Prabhu was made aware [by CIC Services] that there needed to be a business purpose for captive insurance and that claims, even small claims, needed to be made, he clearly regarded the requirement that the captives operate as real insurers as contrary to his objective and resisted efforts by [CIC Services] to have claims filed. His focus was on the investment, wealth-enhancing aspect of the transactions.”

Since the captives had no real risk transfer purpose in Mr. Prabhu’s mind, according to the Arbitrator’s findings, those “wealth enhancing” aspects resulted almost exclusively from tax savings, savings only available if the captives in question were legitimate insurers. “Mr. Prabhu knew that our firm would not voluntarily assist anyone in forming and operating a pretextual captive insurance company for the purpose of improperly claiming tax benefits. All of our material emphasize as much”, said King.

“However, to induce us to serve him nonetheless, Mr. Prabhu intentionally, knowingly, repeatedly and explicitly misrepresented his motives to us. For instance, he represented and warranted in multiple contracts that he was motivated primarily by insurance considerations rather than tax or investment motives when, as the Arbitrator explicitly concluded, he actually was not”, Mr. King continued.

CIC Services takes seriously our obligation to thwart the efforts of would-be tax cheats. As the lawsuit shows, we will vigorously pursue anyone who fraudulently induces us into unknowingly participating in an abusive tax shelter scheme.  ”If you have no genuine insurance motivation for your captive insurance company”, said King, “then CIC Services is not the place for you.”