Martin Frankel Looted Seven Insurers of More Than $200 Million. His To-Do List Began With Launder Money.

An automatic fire alarm brought the Greenwich Fire Department to a high-security compound on a wooded Connecticut street in May 1999. Firefighters walked in and found a file cabinet on fire, and paper burning in two fireplaces.

Nobody was home. The man who owned the place was already gone.

Among the charred papers left in the house was an astrological chart. It had been drawn up to answer one question: “Will I go to prison?”

The answer took five years and seven months to arrive. It was yes.

The buyer nobody could quite check

Martin Frankel spent most of the 1990s doing something that sounds boring and is not. He bought small insurance companies.

Not the household names. Small carriers in Arkansas, Mississippi, Missouri, Oklahoma and Tennessee, the kind that sold burial and funeral policies in small dollar amounts to customers who did not have much.

Those policies are a promise that the company will be there in thirty years. To keep the promise, an insurer holds reserves. Reserves are the pile of money set aside to pay future claims.

Federal prosecutors said Frankel told regulators those reserves were being invested safely on the companies’ behalf. They were not being invested safely. Over nearly eight years, by the count in a 2000 report from the U.S. General Accounting Office, more than $200 million moved out of seven insurers in six states and did not come back.

Some of it was found later. Prosecutors said at sentencing that he had amassed tens of millions of dollars in cash, gold, diamonds and property, and that at least $60 million had been recovered.

Why the alarms took years to ring

Small carriers in small states get examined, but they do not get watched the way a large national insurer does. That was the gap.

The catch, when it came, did not come from a clever audit.

It came because he panicked.

In May 1999, Frankel ran. What he left behind was a house full of burning paper, which is what the Greenwich Fire Department walked into on the alarm call.

The firefighters found more than ash. Among the smoldering documents, the Associated Press reported on the day of his arrest, was a to-do list. Item number one on it was “Launder money.”

He had left the country by private plane, and his next known stop was Rome.

Four months of nothing

Then the case went quiet in the worst way for the people owed money.

Seven insurance companies went into receivership across several states. Receivership means a court takes over a failed insurer and tries to pay what it can. Policyholders who had bought burial coverage for a few dollars a month were now creditors in a proceeding they had never heard of.

And the man at the center of it was somewhere in Europe with a head start and no fixed address.

He was not caught by a tip from a bank. He was caught in a hotel.

September 4, 1999

German police arrested Martin Frankel in a Hamburg hotel room on September 4, 1999, four months after the fire in Connecticut.

He was tried in Germany first, on charges of using fake passports and tax evasion. The German sentence was three years.

Before the United States could put him in front of a jury, another country had to finish with him. He was later returned to face the federal case in Connecticut.

In May 2002, Frankel pleaded guilty in federal court to 24 counts: wire fraud, securities fraud, racketeering and conspiracy.

The number the judge used

Sentencing came on December 10, 2004, in front of U.S. District Judge Ellen B. Burns.

The sentence was 200 months. That is 16 years and 8 months, and the term was built on more than $200 million in proven losses to the insurance companies.

The sentence was revisited once. After the Supreme Court gave judges more room to depart from the sentencing guidelines, the Second Circuit sent the case back. In March 2006, Judge Burns looked at it again and imposed the same 200 months. “It seemed to me, that was the appropriate sentence to impose,” she said.

What the file is actually about

It is easy to read this as a story about a strange man with astrology charts and a burning file cabinet. The charts are real and they are in the record, and they are the least important thing in it.

A funeral policy is bought by someone who does not want a death in the family to become a bill someone else cannot pay. It is a small, defensive purchase. The reserve behind it is not spare money. It is the promise itself, sitting in an account.

Seven companies’ worth of that promise went out the door over nearly eight years, and the people who noticed first were state receivers cleaning up afterward.

The thing the case changed

The General Accounting Office, the audit arm of Congress, took the case apart in September 2000. Its report, “Insurance Regulation: Scandal Highlights Need for Strengthened Regulatory Oversight,” found that state regulators had missed Frankel at three separate stages: when they approved him as a buyer, when they ran routine financial analyses, and when they examined the companies on site. Nobody had checked hard enough on who actually held the assets.

The GAO recorded what regulators did next: information-sharing agreements between states, new working groups, and a new asset-turnover threshold and revised analysis instructions from the National Association of Insurance Commissioners.

The astrological chart asked whether he would go to prison. The federal docket answered it in 2004, and again in 2006.

The Peril Desk’s Fraud Files index tracks adjudicated insurance cases by what the record proves, and the Frankel entry links to the plea and the sentencing.