PROVIDENCE, R.I. — Joseph Caramadre believed he had found the Holy Grail for investors, a risk-free way to speculate in financial securities — all upside with little or no downside. All he needed to make it work were people who would soon be dead.
Today, in a federal courtroom in Rhode Island, the scheme ended with a six-year prison sentence for Caramadre.
"Joseph Caramadre saw death as a holiday, a cause for celebration, a way to make money," U.S. Attorney Peter Neronha declared on the courthouse steps downtown. "He stole the identities of people and used it to make money from companies who should have probably done more due diligence."
The sentencing came more than a year after Caramadre and an associate pleaded guilty to conspiracy and wire fraud charges. In part, the delay was caused by Caramadre’s failed effort to rescind that plea.
ProPublica wrote about Caramadre in August of 2012, describing how the Rhode Island attorney and accountant fashioned his strategy around variable annuities that carried death benefits, payable if the annuitant died.
Before the financial crisis, insurance companies were so eager to sell these annuity policies that they didn't check the health of policyholders. In exchange for a small amount of money, Caramadre, 53, and his associate, Raymour Radhakrishnan, 29, convinced terminally ill people to serve as "measuring lives" on the policies.
Caramadre then lined up investors who put in much greater sums. When the sick person died, his investors would either reap the death benefit — usually at least the initial amount invested — or any gain from the investment, whichever was greater.
Toward the end of the scheme, Caramadre branched out to so-called death put bonds. These also had death benefits that allowed the holder to reap the full price of the bond even if it had been purchased at a discount.
When prosecutors began investigating in 2009, they found family members who claimed that, while their loved ones took the money, they hadn't fully understood the scheme. There were also allegations that some terminally ill participants had been purposefully deceived about the nature of what they were signing and even in a few cases had their signatures forged. Most of the contact with the terminally ill was left to Radhakrishnan.
"While the nature of the victimization of the terminally ill was not monetary, it was a very real emotional and psychological victimization," U.S. District Judge William Smith said at the sentencing.
Smith remarked several times during the hearing, however, about how "difficult" and "complex" the case was, even suggesting that but for a few allegations it might have been a civil rather than a criminal case.
In court filings and publicly, Caramadre has denied the prosecution’s accusations, saying that he instructed employees to properly explain the program to the annuitants and would never countenance forgery by an employee.
Four days into a trial last year, Caramadre and Radhakrishnan pleaded guilty to two counts of a 66-count indictment. Shortly after that, Caramadre tried to take back the plea, blaming chronic depression and his wife's nervous breakdown.
Smith didn't buy the argument and sent Caramadre to jail, where he’s been for seven months. The judge said the attempted plea change was a factor in the sentence he handed down, calling it "an incredibly cynical effort to manipulate the court."
Smith also sentenced Radhakrishnan to a year and a day of prison time, plus six months of home detention.
In his heyday, Caramadre operated a successful estate planning business and gave millions to charities and politicians. Now few charities will acknowledge that he was a donor, Caramadre said at the hearing. And his contributions have become political kryptonite.
One investor in his scheme was Terry McAuliffe, now the Democratic governor-elect of Virginia. Caramadre briefly became a factor in the Virginia governor's race last October when The Associated Press incorrectly reported that McAuliffe had "lied to a federal official" during the Caramadre investigation.
The report erroneously assumed that a "T.M." mentioned in the Caramadre indictment was McAuliffe even though the person with those initials was identified in a prosecution document as having worked construction, an unlikely pursuit for McAuliffe.
McAuliffe subsequently donated $47,000, approximately what he had made as a passive investor in Caramadre's scheme, to the American Cancer Society. McAuliffe's campaign also donated another $27,000 that Caramadre had contributed to his candidacy.
Caramadre, a devout Catholic, placed ads in the newspaper of the Roman Catholic Diocese of Providence in an attempt to find terminally ill participants.
The ads promised $2,000 to all who responded, and Caramadre gave that amount to as many as 135 people without enlisting them in his scheme, he said in today's hearing. Those who did participate usually received between $3,000 and $10,000.
Judge Smith said he will call a separate hearing to determine a restitution amount to be assessed against the defendants in the criminal case.