SEC sues Frankel for embezzling money from life insurers
The legal troubles continue to mount for Martin Frankel, the rogue financier who allegedly bilked millions from several life insurance companies in an embezzlement scheme.
|The lawsuit alleges that Frankel "orchestrated a massive fraud" to loot the assets of a number of insurance companies he acquired.|
The Securities and Exchange Commission filed a lawsuit against Frankel in U.S. District Court in New Haven, Conn., on Sept. 21. Frankel already faces federal charges of wire fraud, money laundering, securities fraud, racketeering, and conspiracy to commit racketeering, as well as lawsuits from state insurance departments in Arkansas, Mississippi, Missouri, Oklahoma, and Tennessee. He is incarcerated in Hamburg, Germany, awaiting extradition to the United States. Law enforcement officials arrested Frankel in a German hotel on Sept. 4, 1999.
Also named as defendants in the lawsuit are John Hackney and Robert Guyer, Frankel's business associates in the alleged scheme, as well as Liberty National Securities Inc., a phony brokerage Frankel established to embezzle money he was supposedly investing for the insurance companies.
Kay Lackey, assistant regional director of the Northeast Regional Office of the SEC in New York City, says the SEC seeks to recover the money Frankel allegedly stole. While that amount has been estimated at $200 million, Lackey says the total has not been determined. Frankel also may face civil penalties.
The SEC's lawsuit alleges that Frankel "orchestrated a massive fraud" to loot the assets of a number of insurance companies he acquired. In 1991, the suit says, he and Hackney established Thurnor Trust, a business entity that would serve as parent to a number of insurance companies he acquired, including Franklin American Life Insurance Co. and International Financial Corp., which served as a holding company for a number of insurers.
Frankel told officials at the insurance companies he bought that he was investing the companies' assets in such safe investments as the U.S. Treasury and other securities through Liberty National Securities. However, Frankel never revealed to the insurers that he actually owned Liberty National Securities. To conceal his interest in Liberty National Securities, Frankel appointed Guyer to be president of the phony brokerage in 1993.
|Frankel allegedly used the insurance company funds to support his "lavish lifestyle."|
The lawsuit claims that Frankel embezzled the money and fabricated phony monthly account statements and trade confirmations with the insurance companies he purchased. Frankel also allegedly submitted false reports and filings with the SEC. The reports "overstated" Franklin American's revenues because the reports were based on false transactions and trade confirmations through Liberty National. The statements also concealed that Frankel was controlling shareholder of Franklin American, and was responsible for investing the insurer's assets.
Frankel allegedly used the insurance company funds to support his "lavish lifestyle." In addition to using the funds to pay his numerous assistants, the funds paid for summer rentals in the Hamptons in New York and were used to purchase $2 million in diamonds that he planned to exchange for currency when he fled the United States in May 1999.
The lawsuit notes that Frankel perpetrated the fraud despite being banned from the securities industry by the SEC in 1992. Frankel was banned and fined for a separate scheme he concocted as a representative of another brokerage, PDS International, in which he made "misrepresentations of securities" to investors.
Lackey says that with Frankel fighting extradition, as well as facing numerous other charges and lawsuits, she has no idea when the case may reach the courts.