Wednesday, August 6, 2014

No. 60: Stranger-Originated Life Insurance—The Sentencing of Three Promoters on Federal Criminal Charges

Blogger's note: In No. 57 posted July 14, I said I was taking a few months off but would interrupt the break if something important happens. In No. 59 posted July 21, I brought to your attention the latest post by Alastair Rickard concerning the proposed demutualization of Canada's Economical Mutual Insurance Company. Now I need to report here and in No. 61 two other important recent developments.

Background on the Binday Case
In the May 2012 and April 2013 issues of The Insurance Forum, and in No. 5 posted October 30, 2013, I discussed a federal criminal case against three promoters of stranger-originated life insurance (STOLI): Michael Binday, James Kevin Kergil, and Mark Resnick. See No. 5 for discussions of the criminal charges against each defendant, the delay caused by the withdrawal of Binday's attorney because of a conflict of interest, the 11-day jury trial, and the conviction on all counts after 15 minutes of jury deliberation. (U.S.A. v. Binday et al., U.S. District Court, Southern District of New York, Case No. 1:12-cr-152.)

The Sentencing
On July 31, 2014, U.S. District Court Judge Colleen McMahon sentenced Binday to serve 12 years in prison, Kergil nine years, and Resnick six years. They were sentenced to those terms for each of four criminal charges, with the sentences to run concurrently. Each sentence is to be followed by three years of supervised release. The defendants are to report to begin serving their sentences on November 4, 2014. At this writing, the defendants have not yet filed notices of appeal.

Judge McMahon also ordered the defendants to pay a total of $39.3 million in restitution: Binday $13.5 million, Kergil $13.5 million, and Resnick $12.2 million. Those figures and the figures below are shown to the nearest tenth of a million. According to the restitution order:
Defendants' liability for restitution shall be joint and several with one another and with that of any other defendant ordered to make restitution for the offenses in this matter, specifically, Paul Krupit... Each Defendant's liability for restitution shall continue unabated until either he has paid the full amount of restitution ordered herein, or every victim has been paid the total amount of his loss from all the restitution paid by the Defendants and Mr. Krupit.
The restitution is to be paid in the following amounts to eight victimized companies: American General Life ($10.4), AXA Equitable Life ($0.2), John Hancock Life USA ($4.5), Lincoln National Life ($3.4), MetLife Investors USA ($0.1), Prudential Insurance ($0.2), Security Mutual Life of New York ($5.7), and Union Central Life ($14.7). Another seven companies that were "interested parties" in the case are not sharing in the restitution: Aviva Life & Annuity of New York, Lincoln Benefit Life, Massachusetts Mutual, PHL Variable, Phoenix Life, Pruco Life, and Sun Life of Canada.

An Attorney-Client Dispute
Binday's criminal defense attorney was Elkan Abramowitz of the New York firm of Morvillo Abramowitz Grand Iason & Anello. After the trial but long before sentencing, Abramowitz, saying there had been a breakdown in attorney-client relations, moved to withdraw as Binday's attorney. Abramowitz did not want to explain to Judge McMahon the reason for the breakdown because of a concern that the explanation might prejudice Binday at sentencing. Judge McMahon therefore referred the matter to Judge Lewis Kaplan, who held a hearing on January 15, 2014. The transcript of the hearing was under seal, but Judge Kaplan ordered it unsealed. I recently obtained the 23-page transcript, which provides a rare glimpse into attorney-client relations.

 General Observations
The Binday case may be the first STOLI case to result in criminal convictions and prison time for defendants. I think it will not be the last.

Another pending STOLI case involves three defendants associated with Imperial Holdings, Inc.: Abraham Kirschenbaum, Maurice Kirschenbaum, and Robert Wertheim. They pleaded guilty to federal criminal charges in late February and early March 2013. Sentencing was delayed and is currently scheduled for December 15, 2014. I wrote about the case in the October 2013 issue of The Insurance Forum.

These cases suggest that engaging in fraudulent activity for the purpose of hoodwinking insurance companies into issuing STOLI policies may sometimes lead to criminal charges rather than civil charges. Whether the possibility of criminal charges will deter activity by wrongdoers trying to make a quick buck in the STOLI business remains to be seen.

I am making the transcript of the hearing before Judge Kaplan available as a complimentary PDF. Send an e-mail to jmbelth@gmail.com and ask for the Binday/Abramowitz transcript.

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