Unintended Consequences

Frankel Ripples Continue Spreading from '90's Scam

Seattle Post-Intelligencer reports that Ex-Tenn. lawyer sentenced to 5 years in Frankel case by a Mississippi court. He will serve the sentence concurrently with the 5.5 years he received in a Connecticut court in September for a related charge.

In 2002, after some time as an international fugitive, Martin Frankel was caught and pleaded guilty to defrauding an insurance company under his control of over $200 million. His elaborate Ponzi scheme involved an international cast and triggered Congressional hearings, inter-governmental accusations and GAO studies. Not to mention the indictments. Frankel is awaiting sentencing as his alleged cohorts are prosecuted.
(Read more ...)

The GAO Report: Scandal Highlights Need for Strengthened Regulatory Oversight .
From the "Results in Brief":

"Throughout the 1990s, Martin Frankel, with assistance from others,
allegedly obtained secret control of entities in both the insurance and
securities industries. He is alleged to have anonymously acquired and
controlled insurance companies in several states and, despite being barred
from the securities industry, to have exercised secret control over a small
securities firm. Using the name of this securities firm, Mr. Frankel
allegedly took custody of insurance company assets and provided false
documents on investment activity to disguise his actual purpose. Instead
of managing these assets in a prudent manner, he allegedly diverted them
to other accounts he controlled and used them to support the ongoing
scam and his lifestyle. The scam was finally exposed after insurance
regulators in Mississippi took enforcement action against three of the
Frankel-connected insurers by placing them under regulatory supervision.
At the time this report was being written, a federal criminal probe against
Mr. Frankel was still ongoing."

"This report includes recommendations to help prevent or detect similar
investment scams in insurance companies by proposing the adoption of
appropriate asset custody arrangements, improved asset verification
procedures, and the sharing of confidential regulatory information across
industries and agencies. In addition to the above recommendations
emanating from the Frankel matter, this report contains a
recommendation designed to broaden and help sustain cooperation among
regulators of different financial services sectors."

A September 18, 2000 letter from U.S. Congressman Dingell to NAIC Commissioner Nichols
included: "I am greatly concerned by the U.S. General Accounting Office’s (GAO) report to me about the insurance investment scam of Martin Frankel ("INSURANCE REGULATION: Scandal Highlights Need for Strengthened Regulatory Oversight" GAO/GGD-00-198). The GAO’s report shows this travesty occurred because state insurance regulators were either too blind to see, or too unwilling to acknowledge, the scam Mr. Frankel perpetrated, openly and fearlessly, over a period of eight years. This fraud went on far too long, not because Mr. Frankel was clever and deceptive, but because he was operating in an environment where the regulators lacked the skill, authority, access to basic information, resources, and "healthy skepticism" needed to protect insurance consumers."

Court TV's Crime Library Article on the Frankel Fraud (10 segments)

Ellen Pollack, The Pretender: How Martin Frankel Fooled the Financial World and Led the Feds on One of the Most Publicized Manhunts in History. A reviewer at Amazon.com says: "Ellen Joan Pollock's The Pretender is a biography of Martin Frankel, an unsavory financial savant whose vast illicit empire reached into very high places on two continents before collapsing with thundering suddenness. By the time of his arrest in 1999, Frankel had bilked various insurance companies out of $200 million via an elaborate (and oddly haphazard) Ponzi scheme. Pollock chronicles not only Frankel's phantom stock trades, fictional portfolios, asset skimming, and money laundering, but his mind-boggling personal extravagances--both financial and sexual. (His Greenwich, Connecticut, headquarters served both as business office and home to a shifting harem devoted to Frankel's sadomasochistic interests.)"

Testimony of the National Association of Insurance Commissioners
Before the Subcommittee on Oversight and Investigations And the Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services United States House of Representatives Regarding: Information Sharing Among State and Federal Financial Regulators. Quoting: "In particular, we want to move very quickly on closing the information gaps that prevented state regulators from checking on securities violations committed by Martin Frankel before he got involved in the insurance industry."

NAIC Proposal re sharing databases

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Posted by dougsimpson at September 23, 2003 04:53 PM | TrackBack