The fun ended in 2009 when the insurance companies began to investigate. In March, Nationwide formally complained to the Rhode Island insurance supervisor who didn't take any action.

Nationwide had calculated the fees it charged and the guarantees it offered based on the assumption that the policyholder would keep the product for a certain period of time, it told Rhode Island officials. Caramadre's treatment of the annuity as a short-term investment caused "a negative economic impact on annuity issuers such as Nationwide," the company wrote in its complaint.

Nationwide's main allegation involved a lack of insurable interest, the relationship between the investor and the annuitant. "It is Nationwide's position that the insurable interest statute applies to annuity contracts," the company wrote.

Attorneys for the two insurance brokers who worked with Caramadre, Edward Hanrahan and Edward Maggiacomo Jr., filed detailed responses to the Nationwide complaint with the Rhode Island state insurance regulator.

The company, the attorneys argued, had "no one to blame but itself."

"Having attracted buyers, Nationwide now seeks to evade its payment obligations, which arise from the very documents that Nationwide itself drafted," Hanrahan's response read.

In 2009, Alaska and Nebraska were the only two states with insurable interest statutes that encompassed annuities in all circumstances, according to Adler, Pollock & Sheehan, one of the law firms that prepared the response. It said Rhode Island has no such requirement.

Nationwide filed suit against one of Caramadre's investors in May of that year, a suit it would lose. Transamerica and Western Reserve would wait until November to file their suits.

In June, Caramadre got word that the FBI had contacted one of the hospice nurses who had referred annuitants to him.

His lawyer, Robert Flanders Jr., a former state Supreme Court justice, asked for a meeting with prosecutors. He hoped to persuade them that the matter was best left to the civil courts. According to Flanders, at the meeting prosecutors let him know they didn't like Caramadre's creation regardless of whether it was criminal or not. "Here was a guy who was just throwing a few shekels at some poor sick people at the end of their lives, and he was reaping the lion's share," says Flanders. "They didn't like what they considered the inequity of it."

Flanders says he took the prosecutors' remarks as a threat. "At one point, the lead attorney there said to me, 'You know all that money your client made from the insurance companies?' I said, 'Yeah, what about it?' 'All that is now going to go from him to you, because during the course of this investigation, this is going to be a thing where he is going to be drained of all the money he made.'"

Asked specifically about the meeting and this accusation, a Department of Justice spokesman declined to comment.

An FBI agent started conducting interviews with hospice workers, investors and family members of annuitants.

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