For Immediate Release - August 11, 2009

Massachusetts Appeals Court Affirms Lower Court Decision Requiring Insurance Company to Pay $415,000 Payment to Commonwealth

Attorney General's Office pursued full recovery after prosecuting Treasurer's Office theft

BOSTON - The Massachusetts Appeals Court affirmed a Superior Court decision finding that Hanover Insurance Co. (Hanover) must pay the Commonwealth $415,000, or all of the remaining funds that have not yet been recovered from the theft of millions of dollars from the State Treasurer's office. This decision means that the Commonwealth will be made whole and will recover all of the approximately $9.4 million that was stolen as a result of the largest theft of state money in Massachusetts history, uncovered by the Attorney General's Office in 1999.

"We are pleased that the Appeals Court upheld this lower court decision, which will remedy any losses incurred as a result of a theft of a significant amount of the Commonwealth's money from the treasurer's office," said Attorney General Coakley.

"The events dating back to 1999, should serve as a reminder that as elected officials our job is to practice constant vigilance in protecting the assets of the Commonwealth. I appreciate the efforts made by my office in recouping these funds and believe the controls we've implemented since I took office, now better protect the assets of the Commonwealth," said Treasurer Cahill.

In 1999, the Attorney General's Office brought criminal charges against a number of individuals involved in the thefts, including a number of former employees of the Treasurer's Office. All of the individuals charged were convicted. Restitution orders covering the full amount of the theft were entered against each of those convicted, but several of them had not repaid the money.

Prior to the thefts, the Treasurer's Office purchased employee dishonesty bonds from Hanover Insurance Co. covering several of the former employees who were convicted. Those bonds required Hanover Ins. Co. to reimburse the Commonwealth for any losses incurred as a result of employee theft. After the thefts were uncovered, Hanover filed a lawsuit against the Treasurer, claiming that it was not required to make payment on the bonds despite the thefts. The Treasurer counterclaimed, arguing that Hanover was required under the bonds to pay any amounts that had not been recovered through restitution.

Last week, the Appeals Court affirmed the Superior Court decision, finding that Hanover was required to make payment on the bonds for all monies that had not yet been recovered, plus interest from the time they should have made payment in 1999. At the time of the Superior Court decision in 2006, approximately $1.7 million remained outstanding. Between that time and the time of the Appeals Court decision, the Commonwealth received approximately $1.285 million in restitution payments, and $425,000 of that amount was repaid by one of the convicted former employees, Richard Arrighi, in September 2008 after Attorney General Coakley's Office brought information to the court showing that Arrighi had sufficient assets to make restitution.

As a result of this decision, Hanover Insurance Co. must now pay the Commonwealth balance of approximately $415,000, plus interest from 1999. The Superior Court will calculate the amount of interest owed.

This matter was handled by Assistant Attorney General James Sweeney, of Attorney General Coakley's Trial Division.