Monday, March 14, 2016

No. 149: Phony Life Insurance Policies Cause Federal Criminal Charges against Five Defendants

On December 16, 2014, the U.S. Attorney in the Northern District of California (San Francisco) filed under seal a grand jury indictment against five individuals in a case involving phony life insurance policies. The indictment was unsealed the next day, after arrest warrants had been executed. The case was assigned to U.S. Senior District Judge Susan Illston, a 1995 Clinton appointee who acquired senior status in 2013. (See U.S. v. Halali, U.S. District Court, Northern District of California, Case No. 3:14-cr-627.)

The Indictment
The defendants are Behnam Halali, Ernesto Magat, Kraig Jilge, Karen Gagarin, and Alomkone (also known as Alex) Soundara. Each defendant was charged with one count of conspiracy to commit wire fraud, 14 counts of wire fraud, and one count of aggravated identity theft. Three of the defendants were also charged with money laundering: three counts against Magat, two counts against Jilge, and one count against Halali. The indictment also mentions unnamed co-conspirators.

The defendants worked for several years as independent contractors selling life insurance for Texas-based American Income Life Insurance Company (AIL). They resigned or were fired in 2012.

The indictment alleges that the defendants and their co-conspirators engaged in wrongdoing that caused AIL to pay more than $2.5 million in commissions and bonuses. The indictment includes a forfeiture allegation that would require the defendants, upon conviction, to forfeit property derived from their wrongdoing. The following list is a paraphrase of the allegations against the defendants and their co-conspirators:
  • Paid recruiters to find individuals willing to take a medical examination in exchange for about $100.
  • Took personal information and submitted applications for life insurance, in many cases without the individual's knowledge.
  • Paid individuals to participate in a fictitious survey of a medical examination company, and then took the personal information and submitted applications for life insurance, in many cases without the individual's knowledge.
  • Solicited family and friends to submit applications for life insurance, and told them they would receive free life insurance for several months, after which the policies would be canceled.
  • In some cases created fraudulent drivers' licenses so they could take medical examinations purporting to be the individuals in the applications.
  • Opened hundreds of bank accounts from which to pay premiums, and typically paid one to four months of premiums before allowing the policies to lapse.
  • Purchased prepaid telephones and Google Voice telephone numbers that were listed on the applications.
  • Returned verification calls to AIL purporting to be the applicants, and confirmed the information in the applications.
  • Listed addresses of gas stations and apartment complexes on many applications in an effort to avoid detection, and fabricated the names of beneficiaries of the policies.
  • Exchanged emails in which they tracked telephone numbers and bank accounts associated with the policies.
Other Developments
The defendants are free on bond. Halali, Magat, Jilge, and Soundara are represented by four different private attorneys. Gagarin is represented by a federal pubic defender.

On December 21, 2015, Magat filed a "motion to dismiss counts of the indictment for insufficiency." On February 18, 2016, Gagarin, Halali, and Jilge filed motions for joinder in Magat's motion.

On February 19, Judge Illston issued an order denying Magat's motion. On February 22, she issued an order scheduling a jury trial for January 30, 2017.

General Observations
Life insurance performs important social functions, not the least of which is providing financial protection for widows and orphans. Yet, as it is often said, life insurance is sold rather than bought. For that reason, it is necessary to pay commissions to agents who perform the many functions associated with the sale of life insurance, including what I have called the antiprocrastination function. It is regrettable when agents, motivated by the lure of those commissions, engage in unacceptable and even allegedly criminal behavior in an effort to enhance their sales results.

I believe that the Halali case will not go to trial, and that the defendants will enter into plea agreements with the federal prosecutors. Nonetheless, I think it is appropriate to discuss the case because of the brazen nature of the defendants' alleged criminal behavior.

Available Material
I am offering a complimentary 27-page PDF containing the indictment and Judge Illston's order denying Magat's motion. Email and ask for the package relating to the Halali case.