Death bet: Alleged $100 million life insurance plot scammed senior citizens

John Egan

Federal authorities allege that three insurance agents orchestrated a more than $100 million scheme that tricked insurance companies into issuing what are known as stranger-owned life insurance policies, or STOLI.

In this sort of “death bet” deal, investors such as hedge funds speculate on human lives by enticing senior citizens to secure life insurance policies solely to transfer ownership to the investors, according to the National Association of Insurance and Financial Advisors. The investors aim to profit by collecting the death benefits after the seniors die. The sooner these “strangers” die, the higher the profit.

“Seniors need to be aware of these misleading schemes, which are often inaccurately described to consumers as a worthwhile life insurance purchase program,” the Ohio Department of Insurance says.

‘Straw buyers’ aided alleged scheme

Charged in the criminal case are Michael Binday, 48, president and owner of an insurance agency in Scarsdale, N.Y.; James Kevin Kergil, 57, an insurance agent in Peekskill, N.Y.; and Mark Resnick, 56, an insurance agent in Orlando, Fla.

Between 2006 and 2011, federal authorities allege, Binday, Kergil and Resnick schemed to defraud four life insurance companies — American General Life, Lincoln Financial Group, Security Mutual Insurance and Union Central Life Insurance. The three men allegedly recruited elderly clients of “modest means” as “straw buyers” to apply for life insurance policies, promising them money if the policies were issued and resold, according to federal officials.

Federal authorities allege that the straw buyers’ applications, which Binday submitted to the life insurance companies, typically misrepresented the applicants’ assets and net worth, their intent to resell their policies and their ownership of other life insurance policies. Binday, Kergil and Resnick often tapped third-party financing to pay the policy premiums, authorities say.

Binday, Kergil and Resnick “earned millions of dollars in commissions from their scheme, and even arranged to purchase STOLI policies from straw buyers for themselves to gain the benefits when the buyers passed away,” the U.S. Attorney’s Office and FBI office in Manhattan say in a news release.

Authorities say the trio’s alleged get-rich-quick scam involved policies worth more than $100 million.

Paying the price

Each man is charged with one count of conspiracy to commit mail and wire fraud, one count of mail fraud and one count of wire fraud. Kergil and Resnick also are charged with conspiracy to obstruct justice, and Binday is charged with obstruction of justice. Each man faces as many as 80 years in prison.

In the news release, Janice Fedarcyk, assistant FBI director in Manhattan, says: “The defendants conspired to reap the benefits of a scheme that defrauded insurance companies and lined their own pockets. But the insurers were not the only victims. Inevitably, insurance fraud results in higher costs to consumers.”

Preet Bharara, the U.S. attorney in Manhattan, alleges that when the scheme was unraveling, the defendants “sought to throw investigators off the trail by destroying documents and telling other individuals to lie. Their alleged actions victimized the companies that issued these policies … and now they will be held accountable for their crimes.”

Taking on STOLI

Jack Dolan, a spokesman for the American Council of Life Insurers trade group, says the council and other groups have been working for years with state lawmakers and state insurance regulators to crack down on STOLI policies. This type of policy “represents a threat to seniors and represents an unlawful abuse of life insurance,” Dolan says.

Thirty states have STOLI bans in place.

“STOLI transactions violate the essential social purpose of life insurance — to provide financial protection to families or businesses,” the National Association of Insurance and Financial Advisors says. “They skirt state insurance laws because they allow investors to buy policies the law would prohibit them from taking out on their own.”

Steven Weisbart, chief economist at the Insurance Information Institute, says that if someone offers to obtain “free” life insurance for you and perhaps even dangles a cash bonus, this should set off an alarm bell. STOLI scammers generally prey on people 65 to 85 years old. Weisbart says that if you’re approached to obtain a policy in a scenario like this, you should get a second opinion from a trusted financial adviser — such as an insurance agent, accountant or attorney — who has no financial ties to the proposed deal.

Weisbart emphasizes that by and large, “buying life insurance is a sound financial transaction.”