Berkshire Hathaway (BRK-A) and its underwriting company, Applied Underwriters, are in the hot seat after New York City-based Breakaway Courier Systems accused the finance giant of running a “reverse Ponzi scheme.”
Last Friday, the courier service filed a lawsuit with the N.Y. State Supreme Court for $18 million, claiming it received worker’s compensation coverage that was actually a complex and risky investment vehicle. Breakaway said the discounted Berkshire package it bought in 2009 was really an expensive “reinsurance” program that required employers to cover each other’s losses.
The terms of the agreement were “so obscure as to be unintelligible” that Breakaway ended up being responsible “for every single loss their injured employees suffer,” according to the complaint. Breakaway paid Berkshire, believing those funds would be set aside into a “protected cell,” which would eventually be returned.
Breakaway claims Berkshire’s companies tried to enrich itself by moving the funds through a web of under-collateralized shell companies.
“Instead, Berkshire Hathaway illegally siphons off premiums through an unlicensed, unregistered and under-collateralized Hawaiian entity, leaving New York employers and injured workers without the funds that New York State requires to be available to cover losses due to worker injuries,” the complaint stated.
Breakaway, with about 300 employees, said it shelled out $863,048.74 over the course of three years. It now wants at least $18 million in damages.
This lawsuit comes after another company, Shasta Linen Supply, sued Berkshire’s Applied Underwriters and California Insurance Company in June—and won. That decision, handed down by the California insurance commissioner, determined that the same insurance product was illegal since it modified premium rates and obligations of Shasta.
Fortune has reached out to Berkshire Hathaway for comment.