Death Takes a Policy: How a Lawyer Exploited the Fine Print and Found Himself Facing Federal Charges
Caramadre says annuities provided only about five percent of the profits he made from his business. He says he took out policies for himself, family members and clients. When he offered his "creation" to investors, Caramadre would either share the commission on the policy with brokers who worked in his office or, in a few cases, he would take a percentage of the gain on the account, he says. He says his lawyers have advised him not to reveal how much he made but it was likely in the millions. Prosecutors allege that he and his accomplices fraudulently obtained $15 million from insurance companies.
One of the weekly advertisements Caramadre placed in the Rhode Island Catholic.
Caramadre anticipated that eventually companies would close the loopholes and shut him down. But what began in 1995 with AIDs patients grew over time to an effort that advertised weekly in a Catholic newspaper aimed at hospice patients.
By 2006, Caramadre had several people combing through the fine print of variable annuity prospectuses. He claims they looked at 680 of them that year. Most he could eliminate quickly. The companies were too small or had sub-par ratings. If they lost millions, they might go out of business which would be bad for both Caramadre and the company.
Caramadre found that the companies with the best benefits were the ones who were most eager to expand their market share. ING Group, for example, was a favorite selection. The Netherlands-based company went on an acquisition spree in the 1990s in an effort to become a dominant player in the U.S. annuities business. ING spent most of the arms race fighting to stay in the top 10 life insurance companies in variable annuity sales. In 2004, ING had new annual variable annuity sales of $7.7 billion. Four years later, that number had increased to $12.3 billion, according to Morningstar.
"When a company is pushing hard to sell bells and whistles on a product — they are desperate to get money through the door — either because they are in an expansionary phase or they want more assets under management in order to sell themselves to a bigger company," Caramadre says.
ING offered a bevy of benefits. It started with a "bonus credit." This became common by late 2006. In the case of ING's Golden Select Premium Plus variable annuity, the company promised to add 5 percent of the value of the contract. If you deposited a million dollars, the insurance company would add $50,000 on top of it.
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