Individual Surety Fraud: The Damage is Lasting
Last month, a federal jury in North Carolina convicted a longtime individual-surety con artist, Dennis Lyon, who received a long prison term for fraud. The court also ordered Lyon and his co-defendants to repay millions of dollars to contractors and public works agencies. Lyon has the right to appeal, but the criminal prosecution is important because of the difficulty of collecting damage awards in civil lawsuits of this kind.
The same devious persistence that is behind the individual-surety con artists also goes to work when it comes to avoiding and delaying payouts ordered by civil courts. Contractor Chris Poindexter, who owns Pridex Construction, is one example of a victimized contractor unable to collect all he is owed under a civil court award. He was the low-bidder in 2011 on a $476,464 Kingfisher, Okla., stormwater improvement project. In what seemed like an effort to help Poindexter bond the work, Kingfisher’s mayor at the time referred Poindexter to an intermediary who introduced Poindexter to Larry Wright, a longtime con artist who was sentenced to jail in Maryland in 1992.
Wright apparently was still selling phony bonds to contractors almost 20 years later. When Poindexter contacted Wright in 2011, Wright secured a $69,000 payment from Poindexter for an “irrevocable trust instrument,” an old favorite for individual-surety-fraud con artists. The city subsequently rejected Wright’s trust instrument and, together with his forfeited $23,823 bid bond, Poindexter was out almost $100,000. Another contractor won the job during a rebidding.
Kingfisher’s former mayor denied any impropriety in his dealings with Pridex or Wright. In June, 2012 Pridex sued the former mayor, the city manager and Larry Wright, charging fraud and tortious interference. During a deposition in Poindexter’s lawsuit, Wright said he had no memory of Poindexter’s request for a refund of the money he had paid. Before the trial, the district court issued default judgments against Wright; during the trial Poindexter settled with the city and city manager. The jury awarded Poindexter a total of $500,000 in actual and punitive damages. The former mayor appealed and briefly won a new trial, but a higher court reaffirmed the original verdict. No money has yet changed hands.
Civil lawsuit judgments are good, but they don’t do enough to make damaged parties whole, and that’s why legislative and contractual solutions are so important. One example of the former is the 2015 Defense Authorization, with its higher requirements for surety assets. An example of the latter is the new American Institute of Architects’ standard forms of agreement, which require that a surety be authorized in the proper jurisdiction. Such measures help because once individual surety fraud is committed, the damage isn’t easy to fix.