JACKSON — More than a decade after it was filed, a federal judge in Mississippi has set a tentative trial date in a lawsuit stemming from scams run by a notorious financier who looted $200 million from insurance companies and created a charity that claimed to have Vatican connections to further his scheme and cover his tracks.
Former Mississippi Insurance Commissioner George Dale sued numerous people and entities in 2001 over Martin Frankel’s pyramid scheme that bilked insurers in five states during the 1990s. Insurance regulators in Tennessee, Oklahoma, Arkansas and Kansas joined the lawsuit. In 2002, the Vatican was added as a defendant, but claims against the church were dropped earlier this month
The lawsuit is tentatively scheduled for trial in April 2013 in Jackson for the remaining defendants, including several Frankel associates. Frankel is not a defendant in the lawsuit. His assets, including hundreds of diamonds, 21 cars and SUVs, an airplane and two mansions were auctioned off years ago to provide restitution.
Frankel set fire to one of his mansions and fled the country in 1999. Authorities searching the mansion found a to-do list at the Connecticut home with the top priority listed as “Launder more money NOW.” He was arrested in Germany four months later. He pleaded guilty to 24 counts of fraud and racketeering in 2002 and is in a federal prison.
The lawsuit has been drawn out in part because the Vatican is recognized as a sovereign state, presenting legal hurdles for the plaintiffs.
Alan Curley, an attorney representing Mississippi authorities, said the plaintiffs stood by the allegations against the Vatican and dropped it from the lawsuit only to avoid an even longer fight over jurisdiction.
A Vatican attorney suggested otherwise.
“As shown by the pertinent facts and the insurance commissioners’ decision to dismiss their own case with prejudice, the Holy See had nothing to do with Frankel’s scheme to acquire and loot insurance companies,” Vatican attorney Jeff Lena said in a statement.
Lena said in an email that Frankel duped an elderly Italian priest who worked at the Vatican, after meeting him through third parties.
Frankel cultivated a relationship with Monsignor Emilio Colagiovanni and formed a charity, the St. Francis of Assisi Foundation to Serve and Help the Poor and Alleviate Suffering, and set it up in the British Virgin Islands in 1998 to deceive regulators about the source of money he was using to buy another insurance company.
The lawsuit said Colagiovanni agreed to use a foundation in which he was involved, the Monitor Ecclesiasticus Foundation, and its Vatican bank account to work with St. Francis and to vouch for Frankel’s charity with regulators. In exchange, Colagiovanni was to get $5 million to use on charitable projects, court records said.
A federal judge in Connecticut fined Colagiovanni $15,000 and gave him a suspended sentence in 2002 after he pleaded guilty to one count of conspiracy. He was given probation on state charges in Mississippi the same year after prosecutors said he cooperated with the investigation.
Vatican attorneys said Colagiovanni is in his 90s, suffers from Alzheimer’s and is in a rest home in Italy.
Frankel, who had already been barred from securities trading, bought small insurance companies in the 1990s, often using an alias, David Rosse, and third parties to hide his involvement. He used the money he stole from the companies to finance a lavish lifestyle, including a two-mansion compound in Greenwich, Conn.
Frankel transferred the money from the companies to his own bank accounts, including some overseas, and spent it on a lifestyle that prosecutors said included several girlfriends. He would use some of the stolen money to buy another insurance company and then loot it. The companies were left insolvent, and their policies were taken over by other insurers.
Frankel came to believe the Roman Catholic Church could help bring the appearance of legitimacy to the operation, especially when Colorado authorities were scrutinizing his attempt to take over an insurer there, court records show.
Frankel’s scheme began to fall apart when Mississippi regulators called a hearing in 1999 after becoming suspicious of the investment practices of some of the companies controlled by Frankel. The trust that owned the insurer told Mississippi authorities the company had been sold to St. Francis, never disclosing that Frankel controlled both.
At a regulatory hearing in Mississippi on April 29, 1999, “Colagiovanni wore priest’s clothing, displayed what he identified as a Papal ring, and indicated that he was present as a representative of the Vatican,” the lawsuit said. “Colagiovanni, acting as an agent of the Vatican, represented orally and in sworn writing that Vatican-related entities had contributed over $1 billion to St. Francis. At the time he made these representations, he knew them to be false.”
Lena, the Vatican attorney, said the church didn’t fund the charity.
On the day of the hearing, Frankel tried to hide or launder as much money as he could, court records said. He fled the United States in May 1999 and was arrested in Germany four months later. He pleaded guilty to fraud and racketeering in 2002. Frankel, 57, is serving a nearly 17-year federal sentence at the Federal Correctional Institution in Fort Dix, N.J. He’s scheduled for release in September 2015.