White-Collar Crime: Martin Frankel’s Case

Background

Martin Frankel was born in the city of Toledo, Ohio, in 1954. He was an intelligent person since his childhood through his studies. Frankel’s sharpness at school motivated his teachers to allow him to skip some grade levels of studies. He got an award scholarship to the University of Toledo. However, he did not proceed with his studies after completing the first semester. He later made a trip to New York City, where he began to work as a stockbroker (Hillman, 2001). He garnered little fortune through his advancement in skills in the stock market. Until the late 1970s, Frankel started to make discrepancies part of his practices as a stockbroker in the world market.

Frankel relocated to Connecticut in the 1980s and started to buy local insurance agencies shortly after leaving New York City. He built on these insurance companies as fronts to deceive investors and loot their money through the Ponzi scheme (Hillman, 2001). Frankel facilitated his deceit on investors by forming fictitious businesses. Thus, he could fund many investors with funds he had stolen from insurance firms. In addition, he spent the stolen money on luxurious property like furs and jewels.

Authorities began investigating Frankel’s insurance scheme as part of an investigation in 1999. Frankel tried to leave the United States but was traced down and arrested in Germany (Raymond, 1999). He was found guilty of racketeering, wire fraud, and money laundering charges after being deported to the United States from Germany. As a result of his fraudulent actions against the insurance companies in the United States, he was apprehended and given a 16-year jail imprisonment term.

An Overview of the Crime, Questionable Actions, and Legal Practices that the Individual has engaged in that have resulted in Victimization or Harm

White-collar crime is a financially motivated non-violent crime conducted by perpetrators for a profession, business, and organizational gain, usually while conducting legitimately accepted businesses. White-collar crime has been rising over the past due to rapid increases and advancements in technological changes. These changes and improvements have proven ways that make it easier for criminals to access and victims to give their money (Boag et al., 2022). Myriad forms of white-collar crime exist, and they harm involved subjects in different ways (Jordanoska & Schoultz, 2019). The non-physical harm caused by white-collar crime blinds society to treat it as harmful as other physical crimes such as domestic violence and murder.

Martin Frankel’s Ponzi scheme qualifies as a white-collar crime because it is a non-violent crime whereby his primary motivation was typically financial. He had occupied a professional position in the insurance industry. This position made him a professional seller and purchaser of insurance for different companies and victims. Frankel’s actions constituted unethical practices that were equal to insurance fraud. Insurance fraud involves a deliberate deception conducted by insurance companies and agents for financial gains. Unfortunately, these practices are usually detrimental to companies, individuals, and victims found perpetrating them in insurance institutions and bodies. Frankel’s insurance fraud led to the loss of $200 million by the insurance in the United States. Further, it led to the apprehension of other criminals that worked together with Frankel. The state courts’ judgment upheld fair judges of imprisonment because Frankel had violated governing rules of insurance in the United States by looting people’s funds.

Frankel’s actions were questionable since they violated standards of justice, economy, and honesty expected from people providing public services to customers, specifically the insurance company. Insurance agents play an essential role as the first-line operators in the insurance sector’s uptake and distribution of insurance products. They are mandated to help customers purchase insurance covers for their property and other related benefits. In addition, they act as the last mile links in connecting with the policyholders where they deal with personalized services in signing off and closing insurance contracts. However, Frankel went against the roles insurance companies have set while being a securities trader and money manager. He established funds while dealing with securities and embezzled money in his investors’ accounts for personal gains.

Frankel created the Thunor Trust Fund, which inappropriately gave him 83% control of the Franklin American Holding Group. The Franklin American Group was interested in southern insurance companies in Mississippi, Colorado, Alabama, and Virginia (Funa, 2017). These companies specialize in funeral insurance for clients from different states. Frankel had vowed to invest assets policyholders had given to the companies. However, he stole the money for personal gains, such as ownership of two mansions in Greenwich and Connecticut alongside jewels and luxurious motor vehicles. Further, Frankel transferred company funds to Liberty National Securities, an unregistered brokerage company he operated in Greenwich (Scarponi, 1999). For this reason, Frankel committed a fraudulent action against the insurance, resulting in twenty-four separate charges against his involvement in brokerage activities.

Even though brokers are common and legal parties in obtaining insurance products from different policyholders, unethical approaches to dealing with customers’ money may lead to victimization and harm to the parties involved and the economy. Frankel started as a professional market and stock trader and broker. He afterward advanced to purchasing and selling insurance for different companies. Brokers are legally accepted in the market, especially for the uptake of insurance services and products. Their roles and actions help connect policyholders to insurance companies and in signing contracts. However, Frankel failed to align with the ethical considerations for the prudent investment of clients’ funds. As a result, investigations and trials on his activities made him accountable for committing erroneous insurance fraud (Scarponi, 2002). The latter harmed the insurance in the United States, and policyholders were deceived into investing their funds. For instance, the insurance experienced a loss of $200 million while investors lost their funds.

Impact of the Criminal Activity on Victims, the Economy, and Society

Actions of fraud in insurance usually result in a devastating impact not only on the affected insurance company but also on society and the economy. The impacts of insurance fraud are felt differently at individual, economic, and societal degrees. Individuals, the economy, and society tend to respond differently to the impact caused by fraud. Hence, the major effects of fraud include financial loss, bankruptcy, and the formulation of new rules and regulations for insurance companies.

Martin Frankel’s fraudulent activity significantly impacted him and the people who supported and conducted the fraud. Most often, perpetrators against insurance suffer consequences of the law because insurance fraud is regarded as an unethical code of conduct between insurance dealers, investors, and policyholders. For this reason, investigations and trials by law enforcement bodies and courts led to the imprisonment of Frankel for twenty-four years. According to Scarponi (2002), John Hackney was sentenced alongside many others for their involvement in the fraud. Further, the deceived policyholders and investors who had given their money to Mr. Frankel were the most affected. The fraud caused financial loss and insecurity to investors since Mr. Frankel had used their money for personal gains. Therefore, the insurance fraud committed by Frankel and his supporter led to their imprisonment for twenty years and a financial loss to investors and policyholders.

The economy was faced with a catastrophic impact that resulted from Frankel’s fraudulent actions. Many businesses were forced to go bankrupt to levels that required financial assistance from the government. Businesses are contributors to the general output of economic growth. According to Roriz and Pereira (2019), The Coalition Against Insurance Fraud report shows fraud costs consumers and businesses $308.6 billion annually. Moreover, the investigations by the FBI indicate an average estimated cost of fraud between $400 and $700 annually in premiums. Thus, decreased money circulation in business tends to lower economic growth (Hoogendoorn et al., 2022). Due to premium payments, businesses will not take insurance covers that contribute to economic growth. The fraudulent act by Frankel, therefore, led to bankruptcy and closure of many businesses that had transacted through his agents in the United States.

Society was also affected by Frankel’s fraudulent actions in the insurance industry. There was a lack of trust in the insurance sector the society. Honest customers were discouraged from investing their money in insurance firms due to the fear of fraud and loss of money. Since fund losses result in steep costs to the insurance company, additional rules were regulated to govern the insurance business. These rules were strict in controlling how society could reach insurance services. Thus, it constrained the society of third-party services and time consumption in obtaining certain services from insurance firms. The additional laws and regulations served to reduce and prevent the occurrence of criminal activities similar to Frankel’s criminal activity. Moreover, the consumers faced increased premium payments and high consumer goods and services costs. Generally, the fraud led to financial losses, which raised premiums and caused society to suffer high consumer goods and services prices.

Media Report

CNBSN reported Frankel’s case of American greed that had caused the loss of millions through money laundering and personal benefits. This action was termed a public insurance scam that Frankel had deceived many investors and caused the insurance to lose $200 million. The media reported an outcry from the public, who claimed to lose their money due to undoubted deceit from Frankel (Reuters, 2002). According to CBSNews.Com (2000), Frankel had embezzled public funds in building mansions and spending on women. He had lived a luxurious life besides being burned from the stock market when his business could not give back profits. The New York Times reported that Mr. Frankel had attempted to relocate from the United States but was captured in Germany and deported back to the United States (Finkelstein, 1999). FBI investigative inquiry and trials pleaded Frankel guilty of twenty-four cases he had committed to looting people’s funds in insurance.

Law Enforcement and Other Investigators

Law enforcement bodies and investigators play key roles in handling criminal cases and activities. The main objective of investigators and law enforcers is to seek evidence that proves the absence or absence of alleged accusations. The criminal activity that Mr. Frankel committed was fairly conducted since the first outcry and the five states that sued banks over the loss of their money (Reuters, 2002). The FBI carried out investigations that established the source for the luxurious life Frankel led. However, Frankel tried to escape and put his house on fire after realizing that he was under investigation. Investigators, in this case, used the best approach until sufficient evident was found. The public realized the menace had caused to the insurance industry in the U.S. However, according to the investigators, the insurance had lux laws and regulations that facilitated all actions Frankel was committing.

The Court

Frankel accepted the charges against him and was presumed guilty of wire fraud, money laundering, and racketeering. He was then sentenced to a twenty-year term imprisonment for his crime. A further examination of the results and investigation and the trial reduced his term for imprisonment to sixteen years. The results of the investigation, trial, and inquiry were fair. Frankel had committed a serious offense that led to enormous financial losses inflicted on the insurance companies he had deceived. Due to criminal activities in the public sector, the implications of the law deserved him to suffer the consequences of the offense.

The Criminal Justice System (CJS)

The criminal justice system’s role is to ensure that suspected criminals are given fair trials in determining the innocence or guilt of the accused. This determination’s objective is entitled to alter or rehabilitate an offender’s behavior to make them socially fit in society through abiding by the law. While assessing how Frankel’s fraudulent case was handled by the criminal justice system (CJS) from investigation to sentencing, it fairly adhered to the procedures in the CJS. Police and the insurance authorities conducted sufficient investigations that provided evidence of Frankel’s deceptive insurance scam. Frankel was given a chance to defend himself and stated that he started the scheme to provide for Sonia and his two children. However, he later pleaded guilty to the alleged twenty-four white-collar criminal offenses he had committed in the insurance (Scarponi, 2002). The federal court proved Frankel guilty and sentenced him to a sixteen-year term of jail imprisonment. The ruling by the U.S Federal Court was, therefore, consistent with the requirements provided by the constitution.

Summary, Impact, and Personal Thoughts on the Case Outcome

White-collar crime is gradually becoming the most form of fraud not only in the insurance sector but other professions. Insurance fraud is an act that law enforcement bodies need to take strict implications to the victims who are got in similar actions. The resultant impacts of fraud in the insurance sector are adverse to individuals, businesses, insurance companies, the economy, and society. Frankel’s long-term impact was a sixteen-year term jail imprisonment, and he could not access insurance options and services. The trial and inquiry on Frankel’s case were fair and should be encouraged and cultivated for future generations. Such deception and embezzlement of people’s funds and money derail business. Businesses end up closing down their operations due to bankruptcy. As a result, the economies of the affected states and industries gravitate negatively, discouraging society from investing in different firms.

I believe that white-collar criminals should be treated stricter than blue-collar criminals because looting other people’s money causes harm to their lives and often to a large number of people. Criminals found guilty should give back the stolen money or the involved authorities should enforce laws that facilitate refunding people’s money. Though law enforcement bodies need to stake high laws and judges on individuals involved in white-collar crimes, financial and insurance bodies should raise standards to prevent likelihood occurrence of future insurance fraudulences. There is a need for these bodies to implement preventative measures that will not tolerate the commission of insurance fraud. Insurance companies must keep larger capital reserves in diversified ways (Moşteanu, 2020). This approach will be an immediate remedy whenever an unpredicted event occurs at an insurance company

Relevant Issue of Discussion in Relation to this Case

Discussing various forms of white-collar crimes is important because multiple forms of fraudulence in the insurance sector are relevant in relation to Frankel’s criminal case. There are also measures that countries and organizations have put in place to curb fraud in insurance companies. Various forms of insurance fraud exist whereby individuals aim to earn illegal gains from insurance processes. For instance, these forms comprise asset and premium diversion, workers’ compensation fraud, and fee churning (Ribeiro et al., 2020). Insurance parties and employees often conduct these actions. However, few people know about the large sums of money insurance lose on frauds. The effects of insurance fraud are common criminal cases in the insurance sector and have different degrees of severity. Most cases endanger people’s lives, weakening insurance companies and increasing the insurable premiums within a company.

False and incomplete claims are a form of insurance fraud that fraudsters tend to use in illegally acquiring peoples’ funds from insurance companies. Consumers provide untruthful and incomplete information when filling out insurance proposals and application forms (Siemering, 2021). In other cases, consumers commit insurance fraud by submitting claims for exaggerated and false incidences. For instance, an individual would fake or deliberately cause an accident and submit a claim to an insurance company. This form of insurance fraud manifests when consumers provide untruthful, misleading information when an insurer asks to gain illegal benefits from the insurance contract cover.

Measures to Control Insurance Fraud

Fraud is deeply prevalent in the insurance industry, and it needs stale measures by involved firms, organizations, and governments to curb its spreading effects. Today, organizations are working effortlessly to combat fraud vehemently. Technological advancement and the pressure to match modern trends have enabled the insurance sector to carry out its activities online (Baldry, 2022). This factor has promoted the increased risk of insurance fraud because most frauds are characterized by individuals taking up different identities easily conveyed via technology (Mosteanu, 2020). Rapid growth in technology has made it difficult for insurance companies to fight fraud. For this reason, insurance companies should improve their approaches and barriers to fraud prevention to aid them in fighting against fraudulent actions in insurance coverage.

Insurance companies in the United States have set up measures that prepare them for the occurrence of fraud cases. Companies have left the tendency to wait for fraud to occur so that appropriate initiatives and measures can be implemented (Galeotti et al., 2020). This strategy is efficient because companies can hardly be hit by fraud when they occur compared to when companies are not prepared for fraud cases (Van Rooij & Fine, 2019). Companies have also put up varied fraud detection strategies (Chen & Lai, 2021). Such strategies are solely focused on identifying fraud cases before fraud cases are reported.

Insurance companies have also formed the largest foundational network whereby they can access personal data and capture criminal history. Therefore, this network helps most insurance companies identify and obtain full information about potential policyholders and investors (Moşteanu, 2020). The information obtained through the vast network help partners in the insurance industry to decide whether they can grant various clients insurance covers or whether they should decline (Farbmacher et al., 2020). The big data approach and its usage have become a primary strategy that companies have begun relying on to reach decisions on claims (Gomes et al., 2021). Big data help insurance companies establish whether a claim is false or true by checking into the customer’s history and real occurrence of disasters.

Insurance companies have formulated formalized groups that investigate cases of insurance fraud. These groups collaborate with law enforcement agencies to save insurers millions through their investigative efforts against insurance fraud (Kempen, 2018). According to Wang and Xu (2018), investigative groups are critical in the insurance industry in ensuring that the track of new records is kept. For instance, tough laws in the United States aim to punish insurance fraud criminals (Geldenhuys, 2020). In this manner, criminals involved in insurance fraud end up in jail and barred access from insurance covers and options.

References

Baldry, C. (2022). The changing quality of office work. The Oxford Handbook of Job Quality.

Eling, M., & Lehmann, M. (2018). The impact of digitalization on the insurance value chain and the insurability of risks. The Geneva Papers on Risk and Insurance-Issues and Practice, 43(3), 359-396. Web.

Geldenhuys, K. (2020). Insurance fraud affects your pocket. Servamus Community-based Safety and Security Magazine, 113(8), 27-31. Web.

Hoogendoorn, B., Uhlaner, L. M., van der Zwan, P., & Stephan, U. (2022). Entrepreneurship, age, and social value creation: A constraint-based individual perspective. Journal of Small Business Management, 51(4), 773–809. Web.

Jordanoska, A., & Schoultz, I. (2019). The “discovery” of white‐collar crime: The legacy of Edwin Sutherland. The Handbook of White‐Collar Crime, 1-15.

Kempen, A. (2018). Organised disruption-the name of the game in fighting insurance fraud with the Insurance Crime Bureau. Servamus Community-based Safety and Security Magazine, 111(4), 50-53. Web.

Moşteanu, N. R. (2020). Challenges for organizational structure and design as a result of digitalization and cybersecurity. The Business & Management Review, 11(1), 278-286. Web.

Ribeiro, R., Silva, B., Pimenta, C., & Poeschl, G. (2020). Why do consumers perpetrate fraudulent behaviors in insurance?. Crime, Law and Social Change, 73(3), 249-273. Web.

Roriz, R., & Pereira, J. L. (2019). Avoiding insurance fraud: A blockchain-based solution for the vehicle sector. Procedia Computer Science, 164, 211-218. Web.

Siemering, C. (2021). The economics of dishonest insurance companies. The Geneva Risk and Insurance Review, 46(1), 1-20. Web.

Van Rooij, B., & Fine, A. D. (2019). Preventing corporate crime from within: Compliance management, whistleblowing, and internal monitoring. The Handbook of White‐Collar Crime, 229-245. Web.

Wang, Y., & Xu, W. (2018). Leveraging deep learning with LDA-based text analytics to detect automobile insurance fraud. Decision Support Systems, 105, 87-95. Web.

Gomes, C., Jin, Z., & Yang, H. (2021). Insurance fraud detection with unsupervised deep learning. Journal of Risk and Insurance, 88(3), 591-624. Web.

Chen, J. I. Z., & Lai, K. L. (2021). Deep convolution neural network model for credit-card fraud detection and alert. Journal of Artificial Intelligence, 3(02), 101-112. Web.

Galeotti, M., Rabitti, G., & Vannucci, E. (2020). An evolutionary approach to fraud management. European Journal of Operational Research, 284(3), 1167-1177. Web.

Farbmacher, H., Löw, L., & Spindler, M. (2020). An explainable attention network for fraud detection in claims management. Journal of Econometrics 228(2), 244-258. Web.

Finkelstein, K. E. (1999, August 7). Inside a Greenwich mansion, One man’s Xanadu disintegrated. The New York Times, p. 3.

Raymond. (1999). On the run: A special report; a fugitive, hiding in plain sight, eludes a dragnet. The New York Times. Web.

CBSNews.Com. (2000). Guilty plea from accused swindler. CBS. Web.

Hillman, R. J. (2001). Briefing slides on Martin Frankel’s alleged $200 million insurance scam. U.S. Government Accountability Office (U.S. GAO). Web.

Scarponi, D. (2002). Frankel pleads guilty to fraud charges. The Washington Post. Web.

Reuters. (2002). Five states sue banks over Frankel case. The New York Times. Web.

Funa, D. (2017). Martin Frankel: A story of insurance fraud | Atty. Dennis B. Funa. BusinessMirror. Web.

Boag, W., Suresh, H., Lepe, B., & D’Ignazio, C. (2022). Tech worker organizing for power and accountability. In 2022 ACM Conference on Fairness, Accountability, and Transparency (pp. 452-463). Web.