The Manhattan United States Attorney and the Federal Bureau of Investigation have charged three insurance agents with a $ 100 million fraud scheme involving stranger-owned life insurance or STOLI.
Typically, people buying a life insurance policy have some relationship to the person being insured. In contrast, with STOLI arrangements, a policy is bought with the intent to resell it to a third-party investor. Many insurance companies won't allow this, and in varying degrees the state laws prohibit it.
In an imprisonment up to 10 years, federal authorities announced on Feb 16 – Michael Binday accuse the three agents, to 48, the president and owner of a Scarsdale, N.Y. insurance agency; James Kevin Kergil, 57, an insurance agent based in Peekskill, N.Y.; and Mark Resnick, 56, an insurance agent based in Orlando, FL – of conspiring to defraud major insurance companies into the life insurance policies to straw buyers issuing, when the true owners of the policies were third-party investors and financiers. All three agents have been arrested.
The insurance companies referred to in the case are: American General Life Companies; Lincoln Financial Group; Security Mutual Life insurance Company and Union Central Insurance Company.
The policies involved were universal life policies, which combine an investment component with a death benefit-an amount paid to beneficiaries when the insured dies. Life insurance companies routinely take the position that the death benefit should correspond to the amount of money that the dependents would need insured's to replace lost earnings or to cover estate taxes and other expenses. When issuing the policies they rely on is the information provided about the applicant's financial condition and income.
In a statement announcing the U.S. Attorney Preet Bharara in Manhattan imprisonment up to 10 years, said that the three insurance agents concocted an elaborate scheme ", using straw buyers and third-party agents, to deceive the life insurance providers into issuing policies to unintended beneficiaries. And when their scheme was unraveling, they allegedly sought to throw investigators off the trail by destroying documents and telling other individuals to lie. Their alleged actions victimized the companies that issued these policies, and hurt the grand jury process. "
According to the imprisonment up to 10 years, the agents recruited elderly clients of modest means to serve as straw buyers and apply for universal life insurance policies. In exchange, the agents would pay them when the policies were resold.
Meanwhile, the agents did the necessary paperwork, misrepresenting the key elements of the application. For example, they stated that the straw buyers were worth millions, although almost all of them had a net worth of well under $ 1 million. They shifted the money around to make it look like the buyers were paying the premium themselves, while in fact it was coming from third-party investors.
While the applications stated that the buyers did not intend to sell their policies after they were issued, the agents had already made arrangements to sell them on the secondary market. All this generated millions of dollars worth of huge commissions for the agents.
As the notes, insurance fraud hurts companies imprisonment up to 10 years because it leaves them holding the bag in a bad business deal. And that indirectly hurts consumers because companies must raise their premiums to make up for lost profits.
The misrepresentations at every turn, imprisonment up to 10 years describes in some cases starting with the system for recruiting straw buyers. Resnick, one of the agents, advertised burial insurance and then persuaded consumers who responded to the ad to buy life insurance instead.
Another, Kergil, falsified documents for an 86-year-old woman who had responded to an ad for life insurance. The application stated that she had a net worth of $ 4.65 million, when in fact she was living on Social Security checks of about $ 1,485 a month and her total net worth was much less than $ 500,000. By participating in the deal she would receive between $ 20,000 and $ 100,000 when the $ 2 million policy she bought was re-sold.
These are classic elements of STOLI schemes, says Stephan r., a life insurance expert Leimberg and president of Leimberg Information Services, a publishing and software company. For more than five years they have proliferated with the vibrancy of the secondary insurance market, he explains; agents get one commission when they first issue the policy, and another when they resell it.
But in a number of respects the latest case is unusual, the criminal charges have been Leimberg adds: brought; the insurance agents have been arrested; the FBI is involved; and obstruction of justice, charges have been filed. As federal authorities got wind of what was happening, the agents allegedly destroyed documents and computer files.
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