Felt sentenced to 40 months

Bill Mercer, United States Attorney for the District of Montana, announced that during a federal court session in Missoula, on Dec. 8, 2006, before Chief U.S. District Judge Donald W. Molloy, Myron "Mike" Kenneth Felt, a 77-year-old resident of Bigfork, appeared for sentencing. Felt was sentenced to a term of:

? Prison: 40 months

? Special Assessment: $200

? Restitution: $512,171

? Supervised Release: 3 years

Felt was sentenced in connection with his guilty plea to wire fraud and money laundering.

In an Offer of Proof filed by the United States, the government stated it would have proved at trial the following:

Crop Hail Management, Inc. ("CHM") was a licensed insurance agency which arranged the sale of crop hail insurance policies to farmers in Montana and other states. Felt was the President of CHM from 1998 through 2003 and worked in its Bigfork office. Felt had previously been in the crop insurance business from 1953 through 1990, when he sold his first crop hail insurance general agency business.

Beginning about June 5, 2001, farmers applied to CHM for crop hail insurance. Felt had CHM issue crop hail insurance policies on behalf of other insurance companies for farmers from Montana and other states. Felt diverted to his personal accounts premiums which CHM should have retained on behalf of those other insurance companies to pay claims. Felt did not have CHM report to the other insurance companies that it had received the diverted premiums. Instead, CHM kept a record of those policies as "out-of-system" policies under a separate numbering system. During 2001, some in-state and out-of-state farmers made claims against the out-of-system policies. Felt had CHM pay the out-of-state claims from the diverted premiums that he had not yet spent. Felt had CHM submit the in-state claims to a Montana insurance company, which paid the claims. Felt later repaid those claims with diverted premiums. For 2001, the total amount of diverted premiums, minus the amount of diverted premiums paid out in claims and loss adjusting expense was $141,160 in net diverted premiums.

Again during 2002, farmers applied to CHM for crop hail insurance. Felt had CHM issue crop hail insurance policies on behalf of other insurance companies for farmers from Montana and fourteen other states. Felt diverted to his personal accounts premiums which CHM should have retained on behalf of those other insurance companies to pay claims. Felt did not have CHM report to the other insurance companies that it had received the diverted premiums. Instead, CHM kept record of those policies as out-of-system policies under a separate numbering system. Some farmers then made claims against the out-of-system policies. Felt had CHM pay as many of those claims as it could from the diverted premiums that he had not yet spent. Claims from Montana farmers were paid from diverted premiums kept in one account and claims from out-of-state farmers were paid from diverted premiums kept in another account. For 2002, the total amount of diverted premiums, minus the amount of diverted premiums paid out in claims and loss adjusting expense was $485,775 in net diverted premiums.

Later during 2002, Felt did not have enough diverted premiums remaining to pay all the claims made against the out-of-system policies. Thus, Felt had CHM flip the numbers on out-of-system policies against which claims had been made to policy numbers recognized as legitimate by the other insurance companies ("flipped policies") and submit the claims to the other insurance companies for payment. Felt submitted claims against flipped policies totaling $863,385 for payment by the other insurance companies. Felt also submitted adjusting expenses for claims made against flipped policies totaling $9,776 for payment by the other insurance companies. The other insurance companies paid CHM $655,789, which represents the submitted claims and adjustment expenses on the flipped policies minus the unpaid premium owed by farmers on the flipped policies of $217,372.

Felt used the net diverted premiums from 2001 and 2002 to pay creditors and for other personal expenses.

Twenty-three insurance companies lost premiums and/or commissions, two reinsurance brokers and two managing general agencies lost commissions, and five states lost premium taxes on the net diverted premiums in 2001 and 2002. The insurance companies that paid the claims on the flipped policies in 2002 were some of the same 23 insurance companies.

On Dec. 6, 2002, Felt e-mailed the December 6, 2002 Heartland Hail Report from CHM's office in Big Fork to the offices of Heartland Crop Insurance, Inc., in Topeka, Kansas. The report was inaccurate in that it did not disclose the premiums that had been diverted by Felt on out-of-system policies and the claims Felt had CHM pay on out-of-system policies.

One farm corporation suffered hail damage to its crops and submitted a claim to CHM. On August 27, 2002, Felt caused an employee to execute and send a check for $59,715 from CHM's account at Rocky Mountain Bank to the farm corporation to pay the claim. Felt knew that the check funds were premiums that he had diverted. Felt paid the claim from the diverted premiums to promote the carrying on the wire fraud scheme.

Because there is no parole in the federal system, the "truth in sentencing" guidelines mandate that Felt will likely serve all of the time imposed by the court. In the federal system, Felt does have the opportunity to earn a sentence reduction for "good behavior." However, this reduction will not exceed 15% of the overall sentence.

First Assistant U.S. Attorney Kurt Alme prosecuted the case for the United States.

The investigation was a cooperative effort between the Montana State Auditor's Office, the Criminal Investigation Division of the Internal Revenue Service and the Federal Bureau of Investigation.