Death Takes a Policy: How a Lawyer Exploited the Fine Print and Found Himself Facing Federal Charges

by Jake Bernstein, ProPublica Joseph Caramadre

Rhode Island financial planner and lawyer Joseph Caramadre is the subject of a 66-count federal indictment relating to investments in variable annuities and corporate bonds. (Matthew Healey for ProPublica)

Joseph Caramadre has spent a lifetime scouring the fine print. He's hardwired to seek the angle, an overlooked clause in a contract that allows him to transform a company's carelessness into a personal windfall. He calls these insights his "creations," and he numbers them. There have been about 19 in his lifetime, he says. For example, there was number four, which involved an office superstore coupon he parlayed into enough nearly free office furniture to fill a three-car garage. Number three consisted of a sure-fire but short-lived system for winning money at the local dog track. But the one that landed him on the evening news as a suspect in a criminal conspiracy was number 18, which promised investors a unique arrangement: You can keep your winnings and have someone else cover your losses.

Caramadre portrays himself as a modern-day Robin Hood. He's an Italian kid from Providence, R.I., who grew up modestly, became a certified public accountant and then put himself through night school to get a law degree. He has given millions to charities and the Catholic Church. As he tells his life story, his native ability helps him outsmart a phalanx of high-priced lawyers, actuaries and corporate suits. Number 18 came to fruition, he says, when a sizeable segment of the life insurance industry ignored centuries of experience and commonsense in a heated competition for market share.

Federal prosecutors in Rhode Island and insurance companies paint a very different picture of Caramadre: They say he's an unscrupulous con artist who engaged in identity theft, conspiracy and two different kinds of fraud. Prosecutors contend he deceived the terminally ill to make millions for himself and his clients. For them, Caramadre's can't-miss investment strategy was an illusion in which he preyed on the sick and vulnerable.

ProPublica has taken a close look at the Caramadre case because it offers a window into a larger issue: The transformation of the life insurance industry away from its traditional business of insuring lives to peddling complex financial products. This shift has not been a smooth one. Particularly during the lead up to the financial crisis, companies wrote billions worth of contracts that now imperil their financial health.

In a series of detailed interviews, Caramadre said the companies designed the rules; all he did was exploit them. Their hunger for profits in a period of dizzying growth and competition, he contends, left them vulnerable to someone with his unusual acumen. The companies have argued in court that Caramadre is a fraud artist who should return every last dime he made. In his rulings to date, the federal judge hearing the civil cases has agreed with Caramadre's contention that he was doing what the fine print allowed.

The secret to Caramadre's scheme can be glimpsed in a 2006 brochure for the ING GoldenSelect Variable Annuity. On the cover is a photo of a youthful older couple. The woman sits next to a computer, sporting a stylish haircut and wire-framed glasses. A man with graying hair and an open collared shirt, presumably her husband, is draped over her in a casual loving way. Images of happy vibrant seniors enjoying their golden years together — frolicking on the beach, laughing in chinos next to a gleaming classic car, enjoying the company of grandkids — populate the sales material for life insurance's hottest product — the variable annuity.

As outlined in the brochure and in countless others like it, the contracts worked this way: The smiling couple gives money to ING in return for the promise of future payments. The consumer chooses how the money is invested, usually in mutual-like funds that have stocks, bonds or money market instruments. This is the "variable" part of the equation.

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Death Takes a Policy: How a Lawyer Exploited the Fine Print and Found Himself Facing Federal Charges

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