Friday, August 8, 2014

No. 61: Stranger-Originated Life Annuities—SEC Actions Against Michael Horowitz and Others

On July 31, 2014, the Securities and Exchange Commission (SEC) issued an order directed at Michael A. Horowitz, a Los Angeles resident who the SEC says was the "architect" of "a fraudulent scheme to profit from the imminent deaths of terminally ill hospice and nursing home patients" through more than $80 million of variable annuities. I refer to such annuities as stranger-owned life annuities (STOLA).

The Order
The order says Horowitz submitted a settlement offer the SEC accepted. Horowitz agreed to admit wrongdoing; pay the SEC $850,000 consisting of disgorgement, prejudgment interest, and civil penalties; cease and desist from violating federal securities laws; and be barred from the securities industry. (Administrative Proceeding File No. 3-15790.)

The order consists of 23 pages, including a four-page annex containing Horowitz's admissions. This summary paragraph appears near the beginning of the order:
The scheme was orchestrated by Respondent Horowitz, then a registered representative of a large broker-dealer firm. Horowitz, together with others, made material misrepresentations and used deceptive devices to obtain the personal health and identifying information of terminally ill hospice and nursing home patients in order to designate them as annuitants on variable annuity contracts that Horowitz marketed to wealthy investors. Horowitz marketed these variable annuities—which are designed by their issuers to be long-term investment vehicles—as opportunities for short-term gains with a hedge against market losses. Horowitz recruited Respondent Cohen to facilitate the sale of additional "stranger-owned" annuities and they each obtained their firms' approval of variable annuity sales by making material misrepresentations and omissions on trade tickets, customer account forms and/or point-of-sale forms, which the broker-dealer principals used to conduct investment suitability and related reviews. As a result of the Respondents' fraudulent acts and practices, certain insurance companies unwittingly issued variable annuities that they would not otherwise have sold. The annuities sold during the scheme—which included five annuities sold to Horowitz's close relatives for profits in excess of $900,000—generated lucrative upfront sales commissions for the Respondents, with Horowitz receiving more than $300,000 and Cohen receiving more than $700,000 in commissions.
The Other Respondents
Moshe Marc Cohen (Brooklyn, NY) is referred to in the above mentioned order. He has not yet agreed to terms.

Seven others were the subjects of three SEC orders issued on March 13, 2014. They are Harold Ten (Los Angeles), Menachem "Mark" Berger (Chicago), Debra Flowers (Chicago), Howard A. Feder (Woodmere, NY), BDL Manager LLC (Woodmere, NY), Marc Steven Firestone (Los Angeles), and Richard Mark Horowitz (Los Angeles). (Administrative Proceeding File Nos. 3-15787, 3-15788, and 3-15789.)

Flowers, an "annuitant finder" recruited by Berger, agreed to cooperate in the investigation. She submitted a sworn statement of her financial inability to pay anything, and she was not charged.

The other six respondents agreed to pay various amounts to the U.S. Treasury as disgorgement, prejudgment interest, and civil penalties. The total amounts were: Ten ($292,000), Berger ($231,000), Feder ($130,000), BDL Manager ($3.3 million), Firestone ($186,000), and Richard Horowitz ($370,000). They agreed to cease and desist from violations of federal securities laws. Ten, Berger, Feder, and BDL Manager also agreed to cooperate in the investigation and be barred from the securities industry.

My First Article about STOLA
The June 2009 issue of The Insurance Forum carried a short article entitled "Money Laundering through Annuities." The article lacked detail because I had heard about the subject only through an unsolicited telephone call. I did not mention STOLA, and hoped to learn more later. What I learned later was more than I wanted to know.

My Second Article about STOLA
The lead article in the April 2010 issue of The Insurance Forum was entitled "Stranger-Originated Life Annuities." The first section of the article dealt with an interpleader lawsuit filed by MetLife Investors USA. It involved a premium wired to the company by a trust. The forged application was for a large variable annuity on the life of a Chicago nursing home patient facing imminent death. Upon her death 12 days after the annuity was issued, the company was uncertain where to send the death benefit. The same trust had applied to other companies for large variable annuities on the same life: Genworth Life & Annuity, Hartford Life & Annuity, ING USA Annuity & Life, New York Life Insurance & Annuity, and Sun Life of Canada US.

The second section of the article dealt with a series of civil lawsuits filed by Transamerica Life and Western Reserve Life of Ohio. The defendants were Joseph Caramadre, a Rhode Island attorney, and Raymour Radhakrishnan, an employee of Caramadre. They had arranged for large variable annuities on the lives of terminally ill individuals for the benefit of Caramadre and his clients.

As my April 2010 article was going to press, The Wall Street Journal carried an article on February 16, 2010 by reporters Mark Maremont and Leslie Scism. The article was entitled "Investors Recruit Terminally Ill To Outwit Insurers on Annuities."

My Third Article about STOLA
The March 2012 issue of The Insurance Forum carried a major article entitled "Recent Civil and Criminal Cases Relating to Stranger-Originated Life Annuities." The first section of the article dealt with the ongoing Rhode Island civil cases.

The second section of the article dealt with the fact that the U.S. Attorney in Rhode Island had filed criminal charges against Caramadre and Radhakrishnan. The charges related not only to the variable annuity scheme, but also to a "death-put bond" scheme. The latter involved corporate bonds owned jointly by two parties—an investor and a terminally ill person—with right of survivorship. The bonds were purchased at prices well below their face value. At the death of a co-owner, the surviving co-owner redeemed the bond at full face value.

The third section of the article provided an update and a major elaboration on the interpleader case. Here are some of the names of individuals mentioned in the public documents I reviewed: Menachem (Mark) Berger, Marc (Moshe) Cohen, Eli Finestone, Debra Flowers, Abraham Gottesman, Asher Gottesman, Akiva Greenfield, the late Dr. Mark Harvey, and Daniel A. Zeidman. I expressed this opinion about the interpleader case:
I think the outright lies, fraudulent misrepresentations, deceptive practices, concealment of material information, forgery of documents, bribery of relatives, perjured testimony, identity misappropriation, and other forms of wrongdoing that allegedly occurred in the case warrant investigation into the existence of a criminal conspiracy—sweeping across the country from New York to Illinois to California—to misappropriate the identities of terminally ill individuals....
My Later Articles about Caramadre
I did not write further about the interpleader case. However, I wrote follow-up articles about the Caramadre criminal case in the February 2013, April 2013, and October 2013 issues of The Insurance Forum. Also, in No. 17 posted January 2, 2014, I wrote about the sentencing of Caramadre to a six-year prison term and the sentencing of Radhakrishnan to a one-year prison term.

General Observations
As stated in my third article about STOLA, I think the nature and scope of the case involving Michael Horowitz and others amounted to a criminal conspiracy. It is hard to believe that using hospice patients and others facing imminent death does not warrant criminal prosecution.

I am making available, as a complimentary PDF, the July 31 SEC order including the annex with the Michael Horowitz admissions. Send an e-mail to jmbelth@gmail.com and ask for the SEC/Horowitz order.

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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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Monday, July 21, 2014

No. 59: The Proposed Demutualization of Canada's Economical Mutual Insurance Company

Alastair ("Al") Rickard is a former Canadian insurance executive and the founding editor of The Canadian Journal of Life Insurance. Although his Journal is no longer published, he is a blogger (www.RickardsRead.com). Through his blog I learned two years ago about the shocking terms of the proposed demutualization of Economical Mutual Insurance Company (Waterloo, Ontario), a large, federally regulated mutual property and casualty insurance company. I invited Rickard to write an article on the subject. He did so, and the article appeared under his byline in the October 2012 issue of The Insurance Forum.

Rickard has posted on his blog several articles about the Economical Mutual proposal, which remains pending. Rickard's most recent post on the subject is his No. 268 dated July 15. I decided to interrupt my summer break to call this latest post to your attention. I urge you to read not only his No. 268, but also at least some of his earlier posts on the subject (his Nos. 208, 209, and those mentioned in the second paragraph of his No. 268). To go to Rickard's post No. 268, click here.

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Monday, July 14, 2014

No. 57: A Note to Readers

In the final two issues of The Insurance Forum—the November and December 2013 issues—I expressed the hope to keep in contact with readers through my blog (www.josephmbelth.com). On October 7, I posted the first item. For a few months thereafter I posted items at the rate of two per week, and later cut back to one per week. Now I have decided to take a summer break during which I may not post anything for a few months. However, I might post an item if something interesting occurs.

In the November issue, where I explained the reasons for my decision to end publication of The Insurance Forum, I said a major reason was my desire to write a memoir about my 40-year experience with the newsletter. I have made some progress, but during the break I plan to concentrate on the project in an effort to complete it fairly soon.

During the break, feel free to communicate with me. It is always good to hear from readers. Thank you for your interest in my work.

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Monday, July 7, 2014

No. 56: J. Edgar Hoover, the FBI, and a Superb New Book about a Famous 1971 Burglary

On the night of March 8, 1971, more than a year before the break-in at the Watergate, eight civil rights and antiwar activists broke into an office of the Federal Bureau of Investigation (FBI) in Media, Pennsylvania, near Philadelphia. The burglars stole—and released to reporters and members of Congress—secret FBI files revealing the existence of unconstitutional programs that violated the civil rights of individuals and organizations. The burglary became one of the most embarrassing unsolved mysteries in the history of the FBI under its legendary director, J. Edgar Hoover.

In 1971, Betty Medsger was a young reporter for The Washington Post. She was one of the first to see the secret files and break the news about them. Now, after more than 40 years, she has written a superb book about the burglary. She found seven of the eight burglars and reveals for the first time—with their permission—the identity of five of them. All of them had avoided detection and were prepared to go to their graves without being identified as the burglars. Two of them agreed to be interviewed for the book but still refused to allow their identification despite the fact that the statute of limitations has long since run out; those two are referred to by fictitious names. The 596-page book, published in 2014, is entitled The Burglary: The Discovery of J. Edgar Hoover's Secret FBI.

I found noteworthy Medsger's detailed analysis of the thought processes of the burglars leading to their decision to break the law and risk lengthy prison terms in order to reveal the illegal operations of the FBI. She describes the meticulous planning that went into the burglary, including the decision to conduct the raid on the night when the nation was absorbed with the heavyweight championship boxing match between Joe Frazier and Muhammad Ali at Madison Square Garden.

Also noteworthy is Medsger's detailed descriptions of the burglars' life experiences preceding the burglary, and their lives after the burglary as they released the stolen files and struggled for years to avoid detection in the massive FBI investigation of the case. For example, the leader of the burglars was a college professor; he died in his eighties in 2013 after a long struggle with Parkinson's disease. Two others were a married couple with three small children (a fourth was born later); the couple made careful arrangements for the care of their children in the event of capture and long prison terms. Especially interesting is the description of how they broke to their children years later the news of their parents' criminal act.

Because I was and still am in Bloomington, I was intrigued by Medsger's discussion of the FBI investigation following the burglary. On pages 147-148 of the book is a list of reports that came in from FBI field offices across the country. Here is one of seven reports mentioned:
From Indianapolis: The field office checked on the whereabouts on March 8 of a man from Bloomington, Indiana, who agents there thought might do such a thing.
The Medsger book is a well written page turner. It is also a thought provoking piece of work. I strongly recommend the book. 

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Monday, June 30, 2014

No. 55: Watergate—The Reissue of a Superb Book on the Subject

August 9, 2014 is the 40th anniversary of the resignation of President Richard Nixon in the wake of the Watergate affair. In those days I followed the news closely, and I read several books on the subject. One book I did not read then was by Elizabeth Drew, a regular contributor to The New York Review of Books and the former Washington correspondent of The New Yorker and The Atlantic. She lives in Washington, is the author of several books, and is a gifted writer.

As Drew explains, on the day after Labor Day in 1973, she and William Shawn, editor of The New Yorker, decided she should write a journal of the period we were entering that Fall. In 1974 her resulting journal ran in The New Yorker "as sets of three parts each," and in 1975 it was published as a book entitled Washington Journal: Reporting Watergate and Richard Nixon's Downfall.

Drew's book has been out of print for many years. Recently, with the anniversary approaching, Drew arranged for a new printing of the book. The new book includes an "Afterword" identifying some things learned in the years after the resignation, and describing Nixon's efforts to rehabilitate himself during the 20 years until his death in 1994.

Drew's book, despite the seriousness of the subject, is laced with humor. One example involved John W. Dean, III, counsel to the President, and John D. Erlichman, assistant to the President for domestic affairs:
Dean has said that Erlichman suggested that he shred the sensitive documents, and "deep six" the other material in the Potomac one evening on his way home to Virginia. Erlichman denied later that he had made either suggestion. He said that he had never in his life proposed to anyone that they shred papers. He said his practice was to burn them.
The book has no photographs, but they are not needed. Drew paints vivid pictures with words. For example, here is a small part of her description of Nixon when he announced his resignation on television the evening before it became effective:
It is hard to believe that this is the last speech Richard Nixon will make as President. Yet there he is, sitting in that familiar scene, at the familiar desk, one flag in his lapel, one by his side, holding white sheets of paper.... He looks bad—the face more creased and drawn. He is wearing a dark suit, a dark tie, and a white shirt....
Drew's 450-page book is superb, but I have a warning. For people who were not around at the time, for people who were around but did not follow developments closely, and for people who are not familiar with the Washington scene, it will be difficult to sort out all the individuals, events, and details. In the front of the book is a five-page list of "Figures in the Events of 1973-1974," but even that is only a small fraction of the people mentioned in the book.

On the other hand, for those familiar with the events and the cast of characters, Drew's book is a delight—a beautifully written page turner. It resembles a diary describing day-by-day developments, and it is extremely difficult to put down. It begins with Labor Day 1973, more than a year after the famous June 1972 break-in, and almost a year after Nixon's landslide reelection victory in November 1972. There are many flashbacks to events that occurred before September 1973.

In the Afterword, Drew refers to the Watergate affair as "the second greatest test of the Constitutional system in our nation's history," implying that the greatest test was the Civil War. I recall others making a similar statement, and I agree with them. If you do not agree, reading Drew's book might cause you to reconsider. I strongly recommend the book.

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Monday, June 23, 2014

No. 54: Daniel Carpenter and a Host of Criminal Allegations

Daniel E. Carpenter (Simsbury, CT), attorney and businessman, was scheduled to report to a federal prison on Friday, June 20. His saga involves cases over more than a decade in federal district courts, circuit courts of appeal, and the Supreme Court. Among the federal agencies involved in the cases are the Department of Justice, the Department of Labor, the Department of the Treasury, and the Internal Revenue Service (IRS). Several cases are ongoing despite Carpenter's incarceration.

The Section 1031 Fraud Allegations
Carpenter owned and operated Benistar, Ltd. and its subsidiaries. One Benistar function was to act as an intermediary in Section 1031 property exchanges. That section of the Internal Revenue Code allows the owner of investment property to defer capital gains taxes on the sale of the property by rolling the proceeds of the sale into the purchase of replacement property. However, the tax deferral is lost if the owner (the "exchangor") takes possession of the sale proceeds. Therefore, companies such as Benistar offer to act as an intermediary by holding the proceeds in escrow until the exchangor is ready to close on the replacement property.

Carpenter promoted the services of Benistar by offering to hold the funds safely, pay a small amount of interest, and provide the funds when needed. However, without the knowledge or consent of the exchangors, Carpenter embarked on a highly speculative program of options trading in the hope of generating large gains for himself.

Carpenter at first used an account at Merrill Lynch, which warned him about the dangers of options trading. He then switched to Paine Webber, which also warned him about the dangers. Initially his plan worked well, but early in 2000 he began suffering large trading losses. By late 2000 the losses had mushroomed to about $9 million.

In February 2004, a federal grand jury in Massachusetts returned a 19-count indictment charging Carpenter with 14 counts of wire fraud and five counts of mail fraud. The indictment identified seven exchangors who lost a total of about $9 million. Carpenter pleaded not guilty on all counts. In September 2004, the grand jury returned a superseding 19-count indictment. Carpenter again pleaded not guilty on all counts.

In July 2005, a 13-day jury trial ended with conviction on all counts. In December 2005, the judge granted Carpenter's motion for a new trial on the grounds that the government used inflammatory language in its closing argument. The First Circuit, in a split decision, upheld the district court's ruling. The Supreme Court declined to review the case.

In June 2008, a second 13-day jury trial ended with conviction on all counts. Carpenter again filed a motion for a new trial. After a three-year delay, the judge granted the motion on the grounds that the government erred in various ways in the closing argument. This time, however, the First Circuit reversed the judge's ruling, reinstated the conviction, and remanded the case for immediate sentencing. The Supreme Court again declined to review the case.

In presentencing memoranda, Carpenter asked for probation and the government asked for 60 months' imprisonment. In February 2014, the judge sentenced Carpenter to 36 months in federal prison on each count, with the terms to run concurrently. That is to be followed by 36 months of supervised release, with the terms to run concurrently.

In the presentencing memoranda, Carpenter said there should be no restitution because the victims had won settlements from Merrill Lynch and Paine Webber, and the government asked for about $14 million in restitution. The judge ordered Carpenter to pay restitution of about $310,000, fined him $100,000, and assessed him $1,900. Initially the judge ordered Carpenter to report to prison on April 25, but later changed the reporting date to June 6, and still later to June 20.

On May 23, 2014, the judge denied Carpenter's motion for a stay of imprisonment pending appeal. The judge reasoned that Carpenter's business activities present a danger of "pecuniary or economic harm" to the public. On June 11, Carpenter filed a notice of appeal to the First Circuit. (U.S.A. v. Carpenter, U.S. District Court, District of Massachusetts, Case No. 1:04-cr-10029.)

The Section 419 Angle
Carpenter marketed multi-employer welfare benefit plans. For many years the IRS has been investigating such plans, through which participants may qualify for favorable federal income tax treatment under Section 419 of the Internal Revenue Code. Contributions to Section 419 plans may be deductible for federal income tax purposes. The IRS considers some of the plans to be abusive tax shelters.

Since 2004, the IRS has been trying to obtain from Carpenter detailed information about his Section 419 plans. He provided some documents, but has fought hard against releasing all the requested documents. In 2008, the IRS filed a lawsuit in an effort to obtain the documents. The case is ongoing. (U.S.A. v. Carpenter, U.S. District Court, District of Connecticut, Case No. 3:08-mc-111.)

The STOLI Fraud Allegations
In December 2013, the U.S. Attorney in Connecticut filed a 33-count indictment against Carpenter and his brother-in-law, Wayne Bursey, relating to stranger-originated life insurance (STOLI). There were 23 counts of wire fraud, nine counts of mail fraud, and one count of conspiracy. Another person mentioned in the indictment was Joseph Edward Waesche IV, an insurance agent who worked with Carpenter. Waesche was charged in a separate case described later.

The indictment provides background on life insurance in general and STOLI in particular. It alleges that Carpenter and his associates provided materially false information to life insurance companies ("providers") regarding the purpose of the insurance, the income and net worth of the insured, the presence of premium financing, and the intent of the applicant to sell the policy in the secondary market for life insurance.

The indictment describes how providers are harmed by earlier and greater payout of death benefits, reduced premium income, financial projections rendered unreliable, delayed premium payments, and payment of large commissions. The providers mentioned are American National, AXA Equitable, Jefferson Pilot, Lincoln National, Metropolitan Life, Penn Mutual, Phoenix, Sun Life of Canada, and Transamerica.

Because Lincoln National received funds under the Treasury Department's Troubled Asset Relief Program (TARP), TARP's special inspector general is involved in the case. Also, because of the multi-employer welfare benefit plans, the Department of Labor is involved.

The indictment describes a Section 419 plan in which Bursey was plan sponsor and trustee of the plan and the accompanying trust. The plan purported to provide death benefits to employees of employers who adopted the plan. An adopting employer designated one or more employees ("straw insureds") on whom the trust purchased life insurance policies.

The indictment mentions 12 straw insureds ranging in age from 69 to 78. The straw insureds were promised free life insurance for two years and a share of the proceeds when the policies were sold in the secondary market after two years. The straw insureds were not obligated to pay anything and were told the premiums were being borrowed from a third party, which was a Benistar affiliate. Each straw insured was told the loan would be repaid from the death benefit if the insured died within two years or from the proceeds when the policy was sold in the secondary market after two years. Although the indictment mentions Section 419 plans, there is no mention of whether the income tax advantages of those plans were a factor in promoting the STOLI arrangements.

Carpenter and Bursey pleaded not guilty on all counts and were released on bond. The jury trial was set for March 11, 2014.

On January 30, 2014, Carpenter filed a motion to delay the trial. On February 4, Bursey filed a motion to delay the trial. On March 5, the U.S. Attorney filed a motion to delay the trial. On March 10, the judge granted the motions and reset the trial for March 10, 2015.

On May 14, 2014, the U.S. Attorney filed a 57-count superseding indictment against Carpenter and Bursey. The added counts were one count of conspiracy to commit money laundering, 13 counts of engaging in illegal monetary transactions, and ten counts of money laundering. The superseding indictment also added details about one additional straw insured. On May 17, Carpenter pleaded not guilty on all counts. On June 5, Bursey filed a motion to delay his arraignment because of illness. On June 6, Carpenter filed a motion to dismiss the superseding indictment for lack of federal jurisdiction. (U.S.A. v. Carpenter, U.S. District Court, District of Connecticut, Case No. 3:13-cr-226.)

The Waesche Case
In December 2013, the U.S. Attorney filed an "Information" charging Waesche with one count of conspiracy. Waesche pleaded guilty, was released on bond, and has not yet been sentenced. (U.S.A. v. Waesche, U.S. District Court, District of Connecticut, Case No. 3:13-cr-224.)

The Information describes the false answers Waesche and others gave in a total of five applications submitted to Lincoln National, Phoenix, and Penn Mutual. Here is what Waesche said in his own handwriting in his plea petition:
Beginning in 2006 and continuing until around 2013, I agreed with others with whom I worked in Simsbury, Stamford and Norwalk to take steps to get insurance companies to issue life insurance policies under false pretenses that would be financed by others and sold on the life settlement market. I caused to be submitted to life insurance companies false applications that stated that the policies were not being financed by outside investors, that there were no discussions about the sale of the policies, and that the policies were for legitimate estate planning needs. Specifically, I submitted such an application on July 3, 2008 to Penn Mutual. I knew what I was doing and I knew that it was wrong.
In a June 6 motion to dismiss the superseding indictment in the STOLI case, Carpenter calls Waesche "now an admitted felon" and blames Waesche for the problems. Carpenter denies knowing what was going on and claims to have been a victim of Waesche's activities.

General Observations
The one Massachusetts case and the three Connecticut cases described in this post are not all the ongoing cases relating to Carpenter. For example, documents in those cases refer to cases involving Carpenter in New York and Wisconsin. However, the cases described here provide insight into the scope of the alleged criminal activities in which Carpenter has been engaged for more than a decade.

The 21-page sentencing memorandum filed by Carpenter and the 18-page sentencing memorandum filed by the government in the case concerning the Section 1031 property exchanges provide interesting contrasts about the views of the parties. I offer the two memoranda (without exhibits) as a complimentary 39-page PDF. Send an e-mail to jmbelth@gmail.com and ask for the Carpenter package.
 
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