James M. Rankin and Shirley Rankin - Page 4

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          premiums, and attempting to assure performance of the bonds on              
          behalf of the surety.                                                       
               When petitioner writes a bond, he collects 10 percent of the           
          face amount of the bond from a defendant as his earned premium.             
          Pursuant to the agreement, petitioner:  (1) Pays 13 percent of              
          the premium collected to Associated, the surety, as a bond cost;            
          (2) pays an additional 10 percent of the premium collected, or 1            
          percent of the face amount of the bond, to an indemnity fund                
          known as a "Build Up Fund" (BUF); and (3) keeps the remainder of            
          the premium.1                                                               
               The surety company that issues a bond is principally liable            
          to California for assuring a defendant's court appearance.  In              
          the event a defendant fails to appear, the surety company has to            
          pay a late surrender fee or forfeiture to California.  If a                 
          defendant is not brought to court within 180 days of a failure to           
          appear, the court issues a summary judgment in the amount of the            
          bond, resulting in a loss on the bond.  The agreement, however,             
          shifts ultimate liability for expenses and forfeitures on each              
          bond from Associated to petitioner, who is personally liable for            


          1    During 1988, petitioner executed bonds in the amount of                
          $5,995,543, earning premiums on such bonds in the amount of                 
          $599,554.  Petitioner collected $581,567 of the earned premiums.            
          During that year, petitioner paid bond costs to Associated in the           
          amount of $77,942 (representing 13 percent of the premiums earned           
          on the bonds sold) and paid $59,955 into his BUF accounts                   
          (representing 10 percent of the premiums earned on the bonds                
          sold).                                                                      





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