In civil lawsuits, Royal has alleged that Yao operated SFC, which specialized in loans to students at truck driving schools, as a Ponzi-type scheme in which he conspired with schools to generate as many loans as possible, then fraudulently obtained new loans from Wilmington Trust (nyse: WL - news - people ), Wells Fargo (nyse: WFC - news - people ) and other institutions to pay down older loans that had gone into default.
All told Royal was left holding the bag for $380 million in SFC loans. In the process of pursing Mr. Yao, Royal Indemnity uncovered $669,000 in questionable payments by SFC to "A. Karlsen" for "aviation services." Turns out that A. Karlsen is actually Alexandra "Lexie" Karlsen Wolfe, Yao's mistress and former playboy playmate.
Yao's attorney claims that the obfuscation had nothing to do with an attempt to hide questionable SFC payments to Karlsen or two Las Vegas casinos where Yao had run up considerable debt. Rather he offers the heartening explanation that Yao was simply trying to hide his affair from his wife.
Update: Mr. Yao was convicted on Tuesday March 14th.