Two Greensboro businessmen and their now-defunct reinsurance company will pay more than $400 million — including proceeds from the sale of Irving Park’s most distinctive mansion — to settle a billion-dollar fraud case.
Millionaires Maurice “Chico” Sabbah and Kenneth Kornfeld will hand over cash, antiques, luxury vacation homes and commercial property from the North Carolina coast to Israel to three Japanese insurance giants.
Those insurers are trying to reach a settlement with the American Hebrew Academy, the boarding school Sabbah financed with $100 million — money the Japanese claim Sabbah defrauded from them. The companies will pursue the lawsuit against the academy if they can’t reach a settlement, said Howard Hawkins, an attorney for one of the Japanese companies.
“(Sabbah) didn’t have the lawful ability to gift those assets,” said Hawkins, a partner with Cadwalader, Wickersham & Taft in New York City.
Sabbah and Kornfeld declined to be interviewed.
Glenn Drew, their attorney and Sabbah’s nephew, declined to discuss the settlement, saying it was confidential. He said the academy is working on a settlement and is planning for the upcoming school year. Forty-five new students will arrive in August, bringing the school’s enrollment to 130 students, Drew said.
Hawkins said the $400 million from Sabbah and Kornfeld is only an estimate of the final total. The amount could be higher, he said.
He called the amount “tremendous. Greater than what we realistically expected. (Sabbah and Kornfeld) decided to live out their lives in peace rather than fight the action until all their assets were taken,” he said.
Matthew Wulf, an attorney for the trade group Reinsurance Association of America in Washington, said “even in the insurance and reinsurance industry, $400 million is a lot of money.” Wulf said it’s an especially large sum for one company to pay.
The settlement ends a nearly three-year-long legal struggle between Sabbah and Kornfeld and the Japanese.
Fortress Re was a reinsurance manager, a complicated business that provides insurance to insurance companies. For years, it was virtually unknown outside of reinsurance circles, operating from a nondescript brick building near downtown Burlington.
Few people knew the company was a thriving, multibillion-dollar business.
Even fewer understood what Fortress Re did: manage an aviation-reinsurance “pool,’’ a risk-sharing insurance group, for the three Japanese companies.
The company was the pool manager for the four airplanes hijacked on Sept. 11, 2001; accountants estimated that the pool lost $1.4 billion that day.
The Japanese companies claim the tragedy revealed years of deception by Fortress Re: It couldn’t pay those losses because Sabbah and Kornfeld kept hundreds of millions for themselves instead of saving it to cover claims.
In December, a three-man arbitration panel in New York City awarded the Japanese companies $1.12 billion in damages. The $400 million, which includes a $265 million down payment the men made in January, represents what Sabbah and Kornfeld agreed to pay out for that billion-dollar award.
The process of paying the settlement already has begun. Hawkins said Kornfeld’s Irving Park mansion has been deeded to the Japanese and is for sale.
The house at Country Club and Cleburne drives was built in 1936 by Cone Mills President Herman Cone, the son of Cone Mills co-founder Ceasar Cone. During their ownership, the Cone family kept the lawn open — convenient for gawking Sunday drivers. Kornfeld changed the 3.5-acre estate to suit his personality. An intensely private man, he landscaped the lawns with trees and shrubs that block the house from view.
The News & Record sought to interview the Kornfelds when they bought the home in 1992, and they declined through their attorney.
At the time, the $2.15-million sale price was believed to be the largest for a North Carolina residence.
The Kornfelds already have moved out of the house, said Alan Duncan, a local attorney representing one of the Japanese companies. Duncan said people have “expressed interest” in the house.
Realtor Katie Redhead, who has handled the sale of many Irving Park properties for Yost & Little Realty, says she estimates the Kornfeld house would bring $6 million to
$6.5 million. “It’s a signature Irving Park property and it speaks for itself,’’ she said.
The price would be high but there are certainly people willing to pay it, Redhead said.
She said rumors about the house have been swirling for weeks and at least five clients have called her wanting to know the status.
Kornfeld will keep one of his four apartments in New York City’s exclusive Millennium Tower, Hawkins said.
The fate of the American Hebrew Academy is less certain.
The school, which rests on 100 wooded acres along Hobbs and Jefferson roads, is lavish even by private-school standards. To design the academy, Sabbah reached across the continent to hire Aaron Green, an 82-year-old San Francisco architect and one of Frank Lloyd Wright’s last surviving associates.
Hawkins said academy officials want to keep the school in business, but that his clients’ want to get their money back.
Last year, BusinessWeek magazine named Sabbah to its list of the 50 most generous American philanthropists. The magazine cited his donations to the academy, estimated at $100 million.
Sabbah, who shuns publicity, was unfazed by the honor.
“For years, I operated anonymously. I really don’t consider myself newsworthy,” Sabbah said at the time. “I’m just a private individual who lucked up and earned a bunch of money.
“I guess my ego is good enough that I don’t need you telling me, ‘Chico Sabbah, you’re a nice guy.’ ”
Staff writer Jim Schlosser contributed to this report.
Contact Margaret Moffett Banks at 373-7031 or email@example.com