Newspaper article THE JOURNAL RECORD

Tennessee Report Cites Regulatory Lapses in Frankel Fraud Case

Newspaper article THE JOURNAL RECORD

Tennessee Report Cites Regulatory Lapses in Frankel Fraud Case

Article excerpt

WASHINGTON -- Martin R. Frankel, who prosecutors contend masterminded an elaborate insurance fraud from his estate in Greenwich, Conn., might have been shut down as early as a decade ago if Tennessee regulators had done their jobs properly, Tennessee investigators said in a report.

The state's comptroller of the treasury found that there was a "gross breakdown" in regulation of Franklin American Life Insurance, the company that was Frankel's main insurance entity. It took years to discover what the comptroller's office suggested were flagrant violations of local insurance rules. The comptroller's report, released this week, found that the state insurance department did not have the money and expertise needed to oversee Franklin American. The department also had "an apparent desire to assist the company," which had been troubled. Department officials were not accused of malfeasance.

Frankel fled the United States in May 1999 under pressure from Tennessee and Mississippi regulators. He was captured four months later in Germany, where he is being held and is fighting extradition.

Prosecutors have accused Frankel of diverting insurance premiums of companies he controlled to a Swiss bank account and spending some of that money on expensive luxuries, including a four-acre Greenwich home, leased corporate jets, a fleet of cars and a sizable household staff. Frankel, who used numerous aliases, also hired prominent lawyers and forged an alliance with a senior official at the Vatican in an apparent effort to expand his holdings and shield them from scrutiny.

Insurance industry experts said that Frankel's suspected fraud showed how vulnerable the industry is to even moderately sophisticated schemes. Insurance companies are regulated by the states, not the federal government, and the quality of oversight varies widely, they said.

According to the comptroller's report, Tennessee regulators made their first mistake in 1991 when they failed to scrutinize the named trustees and beneficiaries of a trust Frankel set up to buy Franklin American despite numerous "oddities" in the trust's filings. …

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