Fraudulent Surety Bond

You’re undoubtedly on the lookout for false surety bonds if you’ve heard horror stories about them. Contractors around the country have fallen for fake bonds or attempted to produce them on their own.

Unauthorized surety bonds are issued by phony surety corporations, rouge bond agents, or the principals themselves in surety bond fraud. They can devastate a building project or any other situation that requires a surety bond.

This is because, in the event of a surety bond dispute, these forged bonds are useless and cannot help. Let’s go over some of the fundamentals of false surety bonds so you’re better equipped to avoid them.

Detecting Fraudulent Surety Bonds

To avoid becoming a victim of surety bond fraud, do your homework on the provider and, if in doubt, phone the surety company or the Attorney in Fact who signed the bond to confirm its legality.

Taking the time to carefully examine your potential surety bond can make all the difference, even if you need a bond as soon as possible to get a bid.

Look for red flags such as bond forms that are entirely handwritten or lack a surety’s corporate seal. Unfortunately, even seals have been known to be counterfeit, thus verification is recommended.

To safeguard themselves and the broader public, project owners, obligees, and contractors must all be on the lookout for bogus bonds.

Consult a Licensed Surety

Working with a surety that is certified by the (IC) Insurance Commission is the safest approach to avoid surety bond fraud. You may see a list of their approved sureties here. Furthermore, the (IC) Insurance Commission to ensure that your surety bonds are valid.

These forms of certifications confirm that the surety has the financial resources to handle the maximum claim size of the bonds they issue, as well as that they are the bond’s genuine issuing surety.

Top Fraudulent Surety Bond Stories

The Millionaire Bond Fake

A story recently surfaced about a Rhode Island guy who allegedly made more than a million dollars selling bogus construction bonds around the country. Because few claims were filed, the scam was able to continue for years, and the surety was virtually unused.

Despite this, several communities across the country failed to provide appropriate oversight in order to apprehend the thief. It wasn’t until a developer called John Gauvin discovered that a surety bond he had purchased from this fraudulent source was “not worth the paper it was written on,” as he told WPRI in New Hampshire.

“I was startled to see how much money he made,” Gauvin continued. “I’m completely astounded that so many towns and localities never checked on these bonds.” This is just one of many examples of why you should only associate with trustworthy surety bond companies.

Federal Fraudsters

Despite the consequences, some fraudulent sureties are eager to deceive federal developers. Surety bond requirements on federally sponsored projects are frequently more stringent than on private ventures. When four subcontractors working on a University of Massachusetts (UMass) construction project filed a complaint against the general contractor, it was discovered that the project’s performance bond was a forgery, complete with a forged notary stamp.

Furthermore, an investigation revealed that this phony surety has been defrauding developers and contractors across the country, resulting in several uncollectible judgements. UMass was also chastised for failing to thoroughly evaluate the phony surety company. Check out the American Bar Association’s article on the subject for further information.

Another case includes a man who took federal fraud to the next level by only issuing fake surety bonds to federal agencies and earning over $4.3 million in bogus fees. Alexander Xavier claimed to be an employee of Quantum Partners, 1st Capital Lending Trust, and Guardian One Capital Corp., and claimed to be a surety bond provider with years of experience in the area. Xavier defrauded the US Departments of the Army and Labor by pledging over $25 million as collateral for the bonds.

In reality, such assets were not available. For more information on this case, see the Department of Justice’s article.

Bogus Bid Bonds

Dishonest contractors have been known to fabricate surety documents in order to apply for projects. After producing phony bid bond documents in order to acquire a county project, a Minnesota man was charged with five counts of perjury.

Bid bond fraud is “very rare,” according to local attorney Dan Fluegal, who added, “We have never heard of anything like this before, in the city or the state.” Project managers must ensure that the surety guarantees submitted with bids are valid. There’s more in this local news story.

A Surety Fraud Empire

A man from Orange Park, Florida was able to collect $100 million in surety bond fraud schemes in just under a year. He delivered forged surety bonds to the US Veterans Administration and the Army Corps of Engineers, among others. These victims were duped by forging signatures, using counterfeit seals, and fraudulently claiming to have the right to execute surety bonds.

Fraudulent premium payments totaling $2.2 million were obtained, causing severe delays in construction projects around the country.

After a thorough investigation, this surety fraud empire came to an end. The investigation’s special agent hopes that the prosecution of this scam would “send a strong message to others that these types of illegal plans to defraud are doomed to fail, and those involved will be held accountable.”

MGS General Insurance Agency Services, Inc. has been providing authentic surety bonds in the Manila area for over 26 years. Our surety bond experts can assist you in obtaining the coverage you require for a successful project. Simply call us at (02) 8875 0494 or go to our website.