People’s Trust Insurance lost $42 million in 2016, was recently in financial “shambles,” and was overvalued by more than $50 million when current President and CEO George W. Schaeffer agreed to buy half of the company from the widow of his late partner. Those claims surfaced in a memo that Schaeffer reportedly sent to Eileen Gold, widow of company co-founder Mike Gold, before he sued her for the return of $4 million he says he overpaid her.
Schaeffer and Gold are now suing each other in Palm Beach County Circuit Court.
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In his suit, Schaeffer is demanding that Eileen Gold release him from his May 2014 agreement to pay $30 million for the Golds’ half of the Deerfield Beach-based company. He says an analysis conducted following Mike Gold’s death in January 2014 “grossly misrepresented” the company’s value as $88 million, but that Schaeffer later discovered it had been poorly managed and was actually worth $34 million in June 2014.
As a result, Schaeffer’s suit says, the $21 million he has so far paid to Eileen Gold was $4 million more than he should have paid. The suit demands that Eileen Gold release Schaeffer from having to pay the remaining $9 million as agreed, and repay $4 million the widow received “unlawfully” and as “unjust enrichment.”
In her suit, she contends that Schaeffer defaulted on the agreement when he missed a $1 million payment on Dec. 15 and now owes a $9 million balance plus $450,000 in interest.
Eileen Gold filed in both suits a memo she said Schaeffer hand-delivered on Dec. 8 — a week before the two filed their respective suits.
The memo includes the words “Privileged and Confidential Inadmissible Settlement Communication” and is headed “To: Eileen Gold. From: George Schaeffer.” It accuses Mike Gold of “mismanaging the company very badly” and hiding it from his then-partner.
“Unfortunately, I also learned that Mike spent almost every day of the week at a casino and at a massage parlor. And it appears that he was using cash from the company to finance these activities,” the memo states.
“Upon reviewing the books and records of the company, we have found that Mike had apparently engaged in CRIMINAL activity with the company, including the borrowing of funds from the insurance company. This is a crime. There are many other examples. But this company that was in supposedly good shape was actually in shambles, and lost $42 million last year alone.”
The memo then contends that an independent forensic accounting firm reviewed the prior valuation and found it was actually worth $34 million in 2014. “So the most I would have ever had to pay you was $17 million,” it says. “And yet I have already paid you $21 million; am supposed to pay you $9 million more; and on top of that I am supposed to pay you a percentage of the company if I should ever sell.”
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The memo declares, “The prior deal is simply unfair and we have to change it. To put it simply, I am not paying anything else to you.”
The memo then states “we can either do this the ‘easy way’ or the ‘hard way.’”
Under the “easy way,” Eileen Gold would release Schaeffer from any further obligation to pay the balance of the purchase price and an agreed-upon share of proceeds from any future sale of the company.
Under the “hard way,” “I will ask a judge to cancel our deal and order that I do not owe you anything else. But I am also going to ask the judge to have you pay me back the money that you owe me.” The litigation could take years, the memo states, adding, “I can easily see this costing you close to $10 million.
“I don’t want to go that route, especially since it will require me to share publicly information about Mike that will be embarrassing. But I will do it if I have to.”
Schaeffer’s lawsuit does not include documents backing up his assertion that the company was overvalued in 2014, nor does it include documentation of its current financial status.
One of Eileen Gold’s attorneys, Etan Mark of the Miami-based firm Mark Migdal & Hayden, said in an interview Friday that the widow released the memo because “my client is not going to be threatened by a bully who views it as sport to renege on a deal from four years ago.”
According to Mark, Schaeffer has not disputed the memo’s authenticity. Eileen Gold, however, disputes Schaeffer’s accusations that her late husband engaged in criminal behavior, spent his time in casinos and massage parlors, and mismanaged the company’s finances, Mark said.
Plus, “I have not seen any evidence suggesting the company was overvalued when he bought it,” he said, adding, “What Schaeffer has done with the company in the past four years he’s been running it … I guess we’ll find out.”
Schaeffer and his attorneys were unable to be reached by email or phone on Friday.
Schaeffer and Mike Gold were best friends when they founded the company as partners in 2008, Eileen Gold’s suit states. People’s Trust began with a unique business model. Mike Gold, former owner of an office automation company, decided he could build a company that charged lower premiums to Florida homeowners by dispatching its own repair contracting company to fix problems at policyholders’ homes, rather than pay out cash.
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At the end of 2017, it had 101,216 policies statewide and 38,822 in Broward, Palm Beach and Miami-Dade counties.
In a March 30 filing, Schaeffer objected to Eileen Gold’s request to see a long list of financial records on grounds they were either confidential, trade secrets or irrelevant. “No such information will be made available for inspection absent entry of a suitable Confidentiality Order,” it states.
Asked Thursday about Schaeffer’s accusations that the company was in “a shambles” and lost $42 million in 2016, Amy Rosen, the company’s chief marketing officer, said she could not discuss “any matter relating to litigation involving the company or any of its employees.”
But in response to a question about a different matter earlier on Thursday, Rosen said that the company’s book of business is “healthier than it’s ever been,” enabling “us to maintain our financial strength to ensure we will be there when our policyholders need us most.”
A state insurance official said the Office of Insurance Regulation will review the memo’s criminal allegations, in conjunction with the Department of Financial Services’ Division of Investigative and Forensic Services, which reviews claims of criminal activities involving insurance.
“We will work closely with the division to determine the appropriate steps, if any, to take,” said Erin VanSickle, deputy chief of staff for the Office of Insurance Regulation. “OIR may decide to review the financials or other regulatory aspects and would coordinate with the division in doing so.”
VanSickle on Friday forwarded a copy of the company’s 2016 financial statement, which shows it sustained a net underwriting loss of $47.2 million and a net loss of $26.8 million in 2016. It reported a net underwriting loss of $5.1 million and net income of $1.9 million in 2015.
Before co-founding People’s Trust with Mike Gold, Schaeffer turned a dental supplier called Odontorium Products Inc. into a nail polish giant, which he renamed OPI Products. He sold the brand to Coty Inc. for about $1 billion in 2010, according to published reports.
In addition to helming People’s Trust, Schaeffer also owns a global hair-care product company, Aloxxi.
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