Wall insurance company comes back after co-founder C. Gavin Gatta goes to prison [Asbury Park Press, N.J.]

March 11--One of the partners was headed to prison for fraud. The books were a mess. The employees were shattered. And John Ritenour, the chairman of Insurance Office of America, had 48 hours to decide: Should he acquire what was left of Smith Gatta Gelok, the Wall-based insurance agency?

Ritenour's fear that the fraud was endemic -- a sure deal breaker -- was put to rest when he interviewed the employees. After seeing their shock and their grasp of the business, he decided it was worth the risk.

"It was more of a gut feeling," Ritenour said from his Longwood, Fla., office. "We looked at the skills that these folks had ... and you could tell. That office is one of our better offices countrywide."

Twenty months after IOA purchased the business operations of Smith Gatta Gelok, the office appears to have recovered. Its sales have grown 15 percent. Its employment has grown from 38 to 41. And those workers, once on the brink of unemployment, are grateful.

The company last week offered a behind-the-scenes look at five frightful weeks in 2010, from the time former partner C. Gavin Gatta admitted defrauding companies out of more than $22 million to the time IOA took over -- five weeks in the middle of the worst economy in 70 years, when the stars somehow aligned.

"It was a tough summer," said Scott Kuzmic, executive director of the IOA office in Wall. "People in the office were (wondering), 'Am I going to have a job?' That was not the time to be out of work. When IOA came in, it was a large exhale."

Smith Gatta Gelok was an insurance broker that connected businesses and consumers with one of dozens of carriers.

The agency was owned by Gatta, David Smith, and Ken Gelok, who worked together at the Louis P. Pipi Agency and bought the agency when Pipi retired in 2001. The business grew, in part through acquisition, eventually serving about 4,000 clients.

Gatta, a mainstay in Monmouth County's high-society circles, resigned in June 2010 and later would plead guilty to defrauding some of the firm's lenders out of more than $22 million.

Gatta was sentenced in January 2011 to four years in prison. The agency's controller, Donald Bargholz, pleaded guilty to being involved in the scheme and was sentenced in August 2011 to six months in prison.

Smith and Gelok were left with a company that was essentially insolvent. A handful of producers joined another agency and took a sizable portion of business with them. Employees who remained were fearful. Carriers and clients were calling.

The worst-case scenario -- filing for bankruptcy and liquidating the business -- appeared more and more likely. Still, "our goal was to preserve the business with our employees, our clients and the carriers we represent," Gelok said.

"We were pretty resolute to keep the agency as in tact as possible," Smith said in a separate interview.

The odds weren't good, but the pieces somehow came together.

? Employees: Several employees departed, but most stuck it out. Personal lines manager Maryann Gowen said it took her about four days to come to grips with the fraud.

She couldn't help but wonder if Gatta's fraud was rampant. But the remaining partners told employees that they were just as stunned and assured them that the crime was isolated. They pledged to keep the business afloat.

"You just get through it," Gowen said. "This is a family of workers and friends. You talk. You communicate."

? Customers: Company officials worried that customers would leave them, similar to a run on a bank. But they found their clients largely sympathetic.

, a certified public accountant with McGuigan Tombs & Co. in Wall, and a longtime client, said the firm won his business in part because it always seemed more interested in developing a long-term relationship instead of making a quick sale.

It's one reason McGuigan said he was shocked to hear about the fraud. But he had faith in Gelok. "We felt Ken earned the right to have this play out," he said. "Our inclination was to believe him."

? C

arriers: Insurers worried that they were victims. If they weren't paid, the policies wouldn't have been in force.

Ed Drag, senior vice president of Selective Insurance Co. of America in Hamilton, said his company did an audit and found that it wasn't entangled. But he has been in the insurance business for 40 years, and he didn't want to be associated with an unethical company.

"When we met with the agency, it was very tense," Drag said. "But I can tell you what impressed me the most. It was Ken Gelok. He said he was going to make it right and make it work, and they were going to overcome this."

? To the rescue: Several agencies considered buying Smith Gatta Gelok, but passed. Wes Scovanner, vice chairman of IOA, said they likely thought they could have picked up the agency cheaply at a bankruptcy auction.

IOA, however, wanted to open a Northeast office, so when John Ritenour heard about the travails at Smith Gatta Gelok, he traveled to Wall with his wife, Valli, who is vice president of accounts services, looked at the books and interviewed employees.

Time was short. Employees, carriers and creditors needed to get paid. Ritenour took a leap that was riskier than most businessmen like and bought Smith Gatta Gelok's books of business for an undisclosed amount, retained about 85 percent of its staff, and paid carriers what they were owed.

Smith Gatta Gelok by then consisted of the money it received from IOA in the transaction and debt of at least $22 million it owed defrauded companies. It is being wound down through a process known as assignment for the benefit of creditors that is designed to be less costly and time-consuming than bankruptcy.

No longer a partner, Gelok stayed with IOA as a vice president. Smith left in April 2011 to help start Strategic Insurance Partners in Nutley, in hopes that it will give him a second chance to build a business.

Hard feelings remain, but the employees have steady jobs. And with a new employer and an economy getting stronger, they have a future.

"We somehow got really fortunate and ended up with a superb crew," Scovanner said. "A lot of things could have gone wrong."

Michael L. Diamond; 732-643-4038; mdiamond@njpressmedia.com; www.twitter.com/mdiamondapp

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