Beacon refuses state's request to copy files

Journal Staff Writers
The Providence Journal
March 4, 2006

The state has a warrant to copy the computer drives, but Beacon's lawyers call the request "overly broad." A court showdown may come next week.

The Beacon Mutual Insurance Co. yesterday refused to allow state regulators and forensic auditors access to corporate computer records, paving the way for a possible court showdown next week.

Rhode Island's dominant workers' compensation insurer, under investigation for alleged favoritism in rate setting, had allowed the auditors to review records throughout the day at the company's headquarters in Warwick.

But at about 4:30 p.m., the DBR's chief examiner handed Beacon president Joseph Solomon a warrant to copy the hard drives on the computers of 21 Beacon employees -- including Solomon's.

Beacon's lawyers refused.

The request was "overly broad" and "a judge wouldn't allow it," said Michael M. Doyle of RDW Associates, speaking for Beacon. The subpoena came "at the end of a very cooperative day."

"It was the timing and the way the request was made," said Doyle. "In an abundance of caution, legal counsel said no."

Doyle said that he expects that issue will be resolved with DBR on Monday. "Everything that DBR is entitled to, DBR absolutely will have access to," Doyle said.

A. Michael Marques, the state director of business regulation, called the procedure routine for a forensic audit, adding that it does not imply any suspicion of wrongdoing by the users of those computers.

Marques said that Solomon was "initially receptive" to the warrant to copy the computer hard drives, but that Beacon lawyers refused to allow it, saying that they had not been provided with reasonable notice.

Gordon then gave Beacon a DBR subpoena, but again the insurer refused, said Marques.

A regulatory subpoena cannot be enforced immediately, like a law-enforcement subpoena, said Marques -- so state regulators plan to go to court on Monday to ask a Rhode Island Superior Court judge to enforce its subpoena.

Failure to comply with the subpoena, said Marques, is considered a violation of state law, punishable by DBR and/or the Superior Court.

Marques said that the move was timed for the end of the work day so as not to interfere with Beacon employees doing their work.

"Typically, you don't give advance notice," said Marques. "Otherwise, somebody could damage their hard drive and then it could not be copied."

Countered Doyle: "In today's world . . . there's nothing you can hide on a hard drive. Everything that's there can be recovered. So that truly is not the issue."

With a subpoena, said Doyle, there is usually a list of the specific information sought.

"If there are files on there about your family, do you think that's appropriate for public scrutiny?"

THE DBR subpoena could escalate tensions between the administration of Governor Carcieri, a Republican, and Beacon, which has close ties to prominent Democrats.

The two have been feuding since last year, when Carcieri opposed a bill that would have allowed the nonprofit insurer to become a private company.

In January, the Rhode Island Senate passed a scaled-back bill wresting control of the Beacon board from the governor. Carcieri responded by releasing an internal draft audit commissioned by Beacon late last year into alleged favorable treatment of certain Beacon clients.

The audit found no evidence to support many of the allegations that had been made by a whistleblower to a Beacon hot line in November. But it did note that Manpower Temporary Services, owned by longtime Beacon chairman Sheldon Sollosy, had failed to provide payroll records to Beacon's auditors to determine whether the firm had received preferential insurance rates.

Sollosy, who no longer owns Manpower, resigned the day that the audit was released.

State regulators vowed to widen an ongoing market-conduct exam of Beacon and hire outside forensic auditors, which will be charged to Beacon.

Beacon countered by announcing an independent committee, headed by former Gov. Lincoln Almond, to oversee a review by the consulting firm of former New York City Mayor Rudolph W. Giuliani.

Earlier this week, the state hired Deloitte Financial Advisory Services, of Boston, to conduct its forensic audit. Deloitte's rates range from $300 to $600 per hour, and the audit will be charged to Beacon, said Marques.

Marques said that the Deloitte auditors scheduled an appointment at Beacon on Thursday to introduce themselves, and got to work yesterday.

Ironically, Marques said, the Giuliani team was also on site. Giuliani's security division, he said, has subcontracted the review to an auditing firm headed by a woman who used to work with the Deloitte auditors.

"I told Deloitte specifically that this is not political," said Marques. "I told them that I wanted them to come back with the truth. If the truth is that Beacon is a fine, outstanding company without any problems, . . . that's what I want."

Still, given the animosity between regulators and Beacon, Marques said that they were prepared with a subpoena.

"Honestly, I didn't think we were going to need to use it," said Marques. "They had indicated that they were open and would give us anything that they wanted . . . The reason we had a subpoena is because Beacon been disrespectful of DBR."

Sharon Gordon, DBR's chief insurance examiner, led the Deloitte auditors, said Marques, while Solomon was advised by lawyers James Ryan, a former state prosecutor, and Jack Partridge, both of Partridge Snow & Hahn.

Copyright © 2006 by The Providence Journal Company

Click here to return to our homepage