Update on Previous Post About Insurance Schemes

Finally, someone read my previous post and wondered what I was saying (Thank you to Josh Wilk!).

As I said in my previous post, I only spent a few minutes looking at the overview of the Ohio case on insurance fraud. One key thing I learned early on as a lawyer is to read the case and not rely on summaries (summaries are helpful for locating an issue but you need to see the case itself to determine if there is something useful or not in the case).

So, here is my summary of the Ohio case previously posted for those in the charitable world (and if it interests you, read the case). The case has nothing directly to do with charities. It is about a convoluted, viatical scheme whereby the promoter would find elderly (possibly dying) individuals to buy life insurance on themselves to immediately transfer the policies to the promoters who lined up investors on the policies. Ironically, there were multiple frauds going on - fraudsters against fraudsters - and of course the whole thing went under. Too complex to even attempt to describe.

The short of it: the receiver in bankruptcy of the principal fraudster wanted to get back premiums on three "fraudulently" obtained policies from an issuing insurance company (mind you - as much as you might hate insurance companies, this one was not a part of the fraud). Court says: you (the plaintiff) perpetrated a plan to obtain insurance policies fraudulently and now you want the money back because the policies were fraudulently obtained (by you!)? No way, end of case (for now).

What should we in the charitable world learn from this? Number one: insurance policies purchased "with the intent to resell...constituted insurance fraud because the viators (the elderly persons buying the policies) never intended to insure their own lives." In other words, anyone promoting a plan that rests on the reselling of policies after two years to "investors" is treading on a very thin ice. And, most charitable insurance schemes that I have seen in the past few years relied exactly on that idea.

See my earlier post about the possibility of Barry Kaye's big pledge to FAU not coming to fruition because of his inability to resell insurance policies for nice profits after two years. http://www.palmbeachpost.com/localnews/content/local_news/epaper/2009/06/12/0612kayepledge.html

I am going to save my thoughts on why even legally legitimate insurance schemes are not productive for charities to get involved with for another post.

My apologies to Choli, Stoli, and Stromboli and whatever else you might call yourself for lumping you in with this case.

More on Life Insurance Deals Going Down

I lost track of these newfangled charitable insurance "too good to be true" schemes a few years ago. CHOLI stood for Charitable Owned Life Insurance, which was a version of STOLI (Stranger Owned Life Insurance).

Anyway, thanks to an anonymous friend who provided me with these links, if you want some enjoyable vacation reading on the topic, check out this summary piece posted by a law firm: http://www.bricker.com/publications/articles/1470.pdf.

If you are really a glutton for punishment, check out the full decision: http://www.bricker.com/legalservices/industry/insurance/09a0187.pdf.

I have to admit that I haven't read either carefully but I really plan to do so soon.

So who is going to "The CHIEF Plan Luncheon" on June 24, 2009 in NYC? They sent me a package and invitation by overnight mail. (CHIEF stands for Charitable Insured Endowment Fund plan)