HC2 CEO Phil Falcone Sues Whistleblower at Insurance Subsidiary

Phil Falcone (Christopher Goodney/Bloomberg)

Former hedge fund manager Phil Falcone’s insurance company is suing the whistleblower who precipitated a Texas regulator’s probe of the insurer.

Continental Insurance Group filed the action against its former executive chairman James Corcoran, a former New York State Superintendent of Insurance whom Falcone had hired in 2015 to head up Continental, a subsidiary of HC2 Holdings, where Falcone is the CEO and until recently chairman.

The complaint, filed in a Texas district court on May 20, seeks more than $1 million in damages.

It alleges that Corcoran was secretly trying to find a buyer for Continental, although HC2 told him it wasn’t interested in selling.

He also sicced the authorities on Falcone. “Shortly after HC2’s admonition, Mr. Corcoran triggered an investigation by Continental’s primary insurance regulator into HC2’s involvement in the management of Continental,” the complaint alleged.

Corcoran alerted the Texas Department of Insurance “of information [he] believed would — and did, in fact — trigger an examination of HC2’s and Mr. Falcone’s involvement in Continental,” it continued. To date, it said no “improper influence” by Falcone has been reported by the regulator.

It also alleged that Corcoran was trying to “wrest control” of the insurer to “line his own pockets” and had “disparaged” Falcone to potential new buyers.

Troubles at the insurance subsidiary surfaced during a recent proxy battle at HC2, in which dissident shareholders tried, unsuccessfully, to boot Falcone off the board.

Continental holds $4 billion in assets, including those bought in 2018 from Kanawha, the parent company of Humana’s long-term health care insurance subsidiary.

As Institutional Investor previously reported, questions had surfaced as to whether that $4 billion is being invested wisely or used as a piggybank for Falcone’s personal interests.

Given his past run-ins with regulators, Falcone acknowledged to II that he isn’t supposed to be managing that money.

“Mr. Falcone shall not have any role in the day to day operations or management of Kanawha or CGIC [Continental] pre- or post- merger,” stated the final decision and conditional order of the proposed acquisition of Kanawha by Continental, a Texas domestic insurance firm.

That didn’t stop Falcone, according to sources familiar with the situation, making Corcoran “unhappy to say the least with some of the ways Phil has managed the business.”

Corcoran declined to comment. (The day after II’s interview with Falcone for a previous article, in which the insurance investigation was raised, II contacted Corcoran again. At that time, he said he had just been “terminated without cause.” He did not return a call regarding the lawsuit recently filed against him.)

The Texas Department of Insurance’s investigation focuses on “corporate governance, related party activities, affiliated agreements and investment activities,” according to Continental’s annual statement.

One related-party transaction was revealed in a Delaware Chancery Court lawsuit by shareholders of DBM Global, another HC2 subsidiary. In 2017 HC2 bought DBM shares for $31.50 to $44.50 and then sold them to Continental in February of 2018 for prices up to $132.21 — a big markup, with profits going upstream to the parent.

Another red flag: a $11.5 million loan Continental made to Arcot Finance, a jewelry lending business headquartered at the same Park Avenue address as Harbinger and HC2.

Arcot has since gone out of business, and Continental now classifies the Arcot bonds as “other than temporarily impaired.”

Earlier this year, HC2 announced it was planning to sell the insurance company, a move that stunned analysts, who said Falcone was touting the business as recently as November.

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