California Insurance Guarantee Association in Whistleblowing Suit

Danny Ly, the former controller for the California Insurance Guarantee Association, has filed a lawsuit against the association that charges it fired him after he blew the whistle about alleged financial irregularities, potential accounting fraud and other potentially illegal conduct.

The lawsuit was filed in the Los Angeles County Superior Court.

CIGA serves as a safety-net for California consumers who carry liability, auto, property and workers’ compensation insurance. Should their insurance company be found insolvent and forced into court-ordered liquidation, CIGA’s purpose is to be there to cover claims made to that insurance company.

According to Ly’s lawsuit, poor management practices have led to higher costs, which are ultimately passed on to individual policyholders. Ly also alleges that financial and accounting chicanery at CIGA may have led to the potential overcharging of certain insolvent insurers.

Some of the accounting irregularities and improprieties alleged by Ly include:

Improper revenue recognition, amounting to an overstatement of about $250 million on CIGA’s income statement; improper write-offs of over 40,000 stale dated checks, totaling over $15 million leading to an overstatement of net income and understating liabilities; CIGA’s apparent failure to comply with California’s Unclaimed Property Law; suspicious opening and closing of numerous bank accounts for no apparent legitimate reason; checks written and recorded within the general ledger that were never issued to the designated payees, increasing fraud risk; improper recording of pre-liquidation recoveries, overstating net income and understating liabilities; improper capitalization of expenses, leading to an overstatement of net income; failure to record unearned premiums, understating liabilities.

Ly alleges that after he complained about the accounting irregularities and improprieties, CIGA began to retaliate against him and then swiftly fired him.

Ly is being represented by Mizrahi Law, APC and Helmer Friedman LLP.