JACKSON — With two years and almost $200 million under the bridge, money manager Martin Frankel is back in the U.S. and on his way to Mississippi to face charges of insurance fraud.
Frankel is accused of stealing close to $192 million from insurers in Mississippi in what Attorney General Mike Moore called the biggest white collar crime in Mississippi history. Frankel’s alleged scheme was exposed to the nation in mid-1999 by the Mississippi Department of Insurance (DOI) after a routine investigation discovered funds were missing from three Frankel-controlled insurance companies — Franklin Protective Life Insurance Co., Family Guaranty Life Insurance Co. and First National Life Insurance Co. of America.
Frankel put off arrest by fleeing the country in May 1999 but was discovered four months later hiding in a Hamburg hotel. He was sentenced to three years in prison in Germany on unrelated charges. Having served half his time in Germany, officials agreed to return him to the U.S. this month, but not before Frankel attempted to escape by cutting his way out of his jail cell.
On March 2, he was extradited to Connecticut, his home state, and his arraignment in federal court was set for March 12. After federal charges are resolved through a guilty plea or trial, Frankel will finally make his way to Mississippi.
In Mississippi, Frankel faces one count of conspiracy, nine counts of wire fraud and one count of fraudulent statements. If convicted, he could get up to 55 years in prison and $105,000 in fines.
In addition to Mississippi, he is accused of defrauding insurers in Arkansas, Missouri, Oklahoma and Tennessee and faces 47 criminal charges among all five states. Regulators in those states are seeking more than $600 million in damages from Frankel in civil cases.
Where Frankel will serve his time if found guilty remains a question. The federal government could take custody, but those involved in the case here in Mississippi hope he will spend some time in the state.
“I would love for him to serve time in Parchman,” said Lee Harrell, DOI deputy commissioner.
Lee Martin, special assistant attorney general and director of public integrity in Moore’s office, agrees with Harrell. “We are looking at about $192 million in losses because of him, and we have a very direct interest in him serving time here,” he said, adding that Mississippi took the hardest hit in Frankel’s alleged scheme.
Another question is whether the $192 million can be recovered and returned to the insurance companies. Much of the money left the U.S. in cash and traveler’s checks, making it hard to account for, said Harrell. So far, $50 million to $75 million of the funds can be accounted for, he said.
If Frankel agrees to a plea bargain, Harrell hopes federal prosecutors will stipulate that Frankel must return all accountable monies. Frankel probably wouldn’t disclose any more, but at least some money will be returned to the three insurance companies, said Harrell.
The case should be helped by the guilty plea entered last October by John Hackney in Hinds County Circuit Court. Hackney was president of the three Mississippi insurance companies and was accused of conspiring with Frankel to defraud the companies, the policyholders and the DOI. According to documents filed in the case, Hackney transferred the cash reserve assets of the companies to Frankel’s control; and Frankel converted the cash reserve assets to his personal use and to the benefit of others, including Hackney. He also submitted false and fraudulent financial statements and other regulatory filings with the DOI that concealed Frankel’s ownership and control of the three insurance companies.
First National lost $159.5 million, Franklin Protective lost $11.8 million and Family Guaranty lost $20.3 million.
In early 1999 when Mississippi Insurance Commissioner George Dale discovered that funds were missing from the companies, he placed all three under administrative supervision on April 29, 1999, and the companies were liquidated two months later by court order. Policy holders with the three Mississippi companies were protected by the Mississippi Life and Health Insurance Guaranty Association (MLHIGA), a guaranty fund established by the Mississippi Legislature. By law, each life insurance company operating in Mississippi is assessed a percentage of their revenues to be placed in the fund, and the money is used to cover policy holders if a company goes under.
Martin said Dale should be commended for blowing the whistle on Frankel. “If it had not come out, he would still be doing what he was doing,” said Martin.