NEW YORK – Michael Binday, James Kevin Kergil, and Mark Resnick have all been indicted of defrauding major insurance companies to the tune of $100 million. The three insurance agents managed to do this by getting the insurance companies to issue life insurance policies to straw buyers when the real owners of the policies were financiers and third party investors. Big names in the insurance business like Lincoln Financial, Union Central Life Insurance Company, American General Life Companies and Security Mutual Insurance Company have been taken in by what is essentially known as a STOLI scheme.
The STOLI or stranger- owned life insurance allows people to buy policies with the almost sole intent of re-selling it to a third party investor. While most insurance companies do not allow this, state laws also bar this in a few ways. Binday, Kergil and Resnick managed to carry out this fraud by using universal life policies, an extremely complex web of third party agents, straw buyers and fabricated documents. The life insurance companies were convinced to issue policies to unintended beneficiaries. This scam occurred because life insurance companies would have relied upon documents pertaining to the applicant’s financial condition when taking into account the payment of death benefits.
The fraudulent insurance agents enlisted actual senior citizens as clients. Where they strayed off the legal path was when they cooked up the paperwork to show that these clients of otherwise modest incomes were actually some HNIs (high net worth individuals). The agents promised these straw buyers payment when the policies were sold and even though they assured the companies that the policies would not be sold, the sales went through on the secondary markets which brought in several million dollars for the agents. With other means like misleading advertisements and false documents, these agents have been “successful” in perpetrating a large scale scam.
While it may not look like the consumers got hurt in this deal, the mechanics of such a fraudulent scheme are such that the insurance companies are left holding the rotten bag of deals. But they then raise the premium payments for clients in order to make up for all the money they have lost. So in the long run, the consumers are innocent victims of such insurance frauds.