Journalism in the Public Interest

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

The life insurance industry tried to make variable annuities irresistible to investors and was enraged when a Rhode Island lawyer exploited the fine print for his own profit.

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)

Update, Dec. 16, 2013: A federal judge sentenced Joseph Caramadre to six years in prison for his role in an investment scheme that recruited terminally ill people to sign over death benefits to passive investors.

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.

There are two main benefits to this arrangement not found in the ordinary mutual funds sold by brokers and financial advisers. Taxes on variable annuities are deferred until the consumer takes out cash, which means it's possible to move your money among funds without paying taxes until the money is withdrawn. (An investor who cashes in shares of a mutual fund must pay taxes on any gains.)

Variable annuities also typically include a life insurance component called a guaranteed death benefit. With this guarantee, if the market crashes — but you die before your investment recovers — your beneficiary still gets a lump sum equal to either the death benefit or the value of the investments in your account, whichever is greater.

The target audience for brochures like that of ING's are people nearing retirement with a nest egg to safeguard and perhaps grow a bit. It's a huge and growing market. In 2011, as the first wave of baby boomers began to retire, there were more than 40 million people age 65 or over. Between 2001 and 2010, life insurance companies sold about $1.4 trillion worth of variable annuities, according to LIMRA, an industry association.

Caramadre got the seeds of his idea in the mid-90s when he attended an investment seminar for insurance agents. He quickly saw how variable annuities could be a hot product for insurance companies — particularly when they could charge hefty fees for attractive goodies like the guaranteed death benefit.

Caramadre decided that he wouldn't offer variable annuities to clients in the way the insurance companies envisioned. It was too expensive. "They are just whacking you for fees," he says.

What Caramadre wanted was a way to get his clients the benefits without their having to die.

* * *

Society has long frowned on certain behaviors. Taking out an insurance policy on a friend or neighbor and killing them? Not acceptable. Taking out a life insurance policy that gambles your neighbor will die soon, even without your help, also crosses the line. Today, it is well-established law that one must have what is called an "insurable interest" before purchasing an insurance policy on someone else's life. The person who benefits from the policy must be a relative or business associate who himself would face financial or familial loss from the death.

Insurable interest worked fine for 200 years or so until the life insurance business itself changed. Despite its name, the industry doesn't sell as much "life insurance" anymore. Life companies now peddle financial services, particularly annuities. Variable annuities were developed in the 1950s, initially as a way to give teachers retirement options. Insurable interest was not an issue and could have been an impediment to widespread adoption of the product.

Caramadre did his research and concluded that Rhode Island law did not require that people buying variable annuities have an insurable interest.

As imagined by the insurance companies, variable annuities have two participants. There's the investor, the person who puts up the money. That person typically also serves as the annuitant, or the "measuring life." If that person dies, the death benefit is paid to the beneficiary, usually a spouse or child.

Caramadre realized it didn't have to be that way. There was no requirement that the investor and the annuitant be the same person. In fact, as he read the contracts, the annuitant didn't need to have a relationship with the investor at all. Caramadre or one of his clients could buy an annuity on the life of someone who was not expected to live long and then pocket any profit when that person died.

"All we need to do is replace the necessity of the investor having to die, with someone else, dying," says Caramadre.

If they chose well, the account went up and they reaped the benefits. If they chose poorly, the death benefit kicked in and they recouped their original investment.

"If you won, you keep the winnings. If you lose, they give you your money back," says Caramadre.

There is something morally unsettling about this. Put simply: Caramadre was setting himself and his clients up to profit from the demise of strangers. While the macabre aspect of his scheme offends many, it did not make Caramadre squeamish. He rationalized that a lot of people — funeral homes, hospitals and cemeteries — make money from the dead and dying, why not him?

Caramadre's insight might have remained a curiosity were it not for something called "the arms race." As competition intensified in the mid-2000s, many life insurance companies launched an unprecedented war for customers, offering benefits they now acknowledge were far, far too favorable.

The insurance companies' contracts provided little defense against Caramadre's approach. For policies under a million dollars, they didn't check the health status of people receiving variable annuities. Instead, they limited the ages of annuitants or the amount that could be invested. All that the companies required for persons to serve as a measuring life was their signature, birthdate and Social Security number. Some didn't even require the signature.

There was usually only a single line that touched on insurable interest in the contract. Companies would ask if a relationship existed between the investor and the annuitant. Caramadre and the men with whom he worked would either leave the answer blank or type in "none." The companies, eager for business, took the policy anyway.

There have been at least eight lawsuits filed in Rhode Island's federal district court relating to Caramadre's scheme. Insurance companies Nationwide, Transamerica and Western Reserve have all sued. The companies have not fared well in civil court. United States District Court Judge William Smith keeps knocking out claims. The companies then re-file new ones. As of this writing, Western Reserve has filed five successive complaints against Caramadre in the same case. When he dismissed Nationwide's complaint, Judge Smith questioned whether the company ignored its own contracts. In the Western Reserve case, Judge Smith wrote, "It is a bit ironic for Plaintiffs [the insurance companies] to suggest that they did not know the true nature of contracts that they themselves drafted."

The lawyer who represents both Transamerica and Western Reserve declined to comment.

The more serious charges are the criminal ones. Caramadre usually paid dying people between $3,000 and $10,000 for agreeing to serve as annuitants. He characterizes the arrangement as a win-win for everybody but the insurance companies. Prosecutors charge that he instructed participants in the scheme to lie, to steal identity information and to forge the signatures of annuitants in an effort to defraud insurance and bond companies.

The story as told by prosecutors goes like this: In an effort to get rich, Caramadre and his associates enticed the dying to give up their vital information by offering them $2,000 as a charitable donation. More than 150 people received the $2,000. Of those, at least 44 went on to play a role in number 18.

The government alleges that Caramadre directed his associates to lie to both the annuitants and the insurance companies. Sometimes, prosecutors assert, the dying people had no idea someone else stood to profit. In other instances, the indictment says, dying people were told that their signatures were just for the receipt of the charitable donation. A Caramadre employee allegedly told other family members they would be the beneficiaries. In five cases, the government says, signatures were forged.

Caramadre denies the accusations. He says that he instructed his employees to properly explain the program to the annuitants and that he would never permit forgeries.

Youthful looking with a round expressive face etched with deep lines across his brow, Caramadre appears more like an eager-to-please bulldog than a criminal mastermind. During the arms race, he says, companies did not complain when Caramadre paid their hefty fees and later filed claims seeking death benefits. Family members didn't object either. Everything changed in 2009 with the financial crisis. Companies started to feel the consequences of the arms race, the insurance companies sued and the FBI began visiting relatives and surviving annuitants. Today, some of those family members are the strongest witnesses for the prosecution.

"I lose my mom, who is my best friend, my world, and in me, losing my mother forever at the age of 64, you, in turn, profit and get X amount of dollars," says Stephanie Porter, whose mother received $2,000 from Caramadre before she died of cancer. "It's slimy what the man did."

* * *

Caramadre learned to hustle early. He graduated from the University of Rhode Island in three years with an accounting and finance degree, supporting himself through odd jobs that included running his church's weekly bingo game. After graduation, he took a job at a bank preparing documents for trusts. A friend convinced him that his fastest track to becoming a millionaire would be to sell life insurance, so he took a job as an agent with the Penn Mutual Life Insurance Company.

Caramadre had landed in an industry on the cusp of a historic transformation.

Life insurance used to be safe and profitable. Many insurance companies had begun in the 1800s as mutual aid societies. They were ostensibly owned by their customers who sometimes even received dividends. The idea behind the business was simple: Collect premiums from lots of people at a price high enough to account for mortality, which can be quite accurately predicted. The companies invested their pools of money. When they wandered into trouble, it almost always involved poor investment choices rather than unforeseen behavior by policyholders. By 1985, annual compensation for a top company CEO could be in the high six figures. While this was not a Wall Street salary, the business had the benefit of comfortably predictable profits.

Insurance agents worked for specific companies and offered products only from that firm. The agent was a man of the community, hawking a service that few young and healthy people want to contemplate. The old adage in life insurance is that "it's sold, not bought." Agents sold a relationship and a vision for the future, encouraging clients to protect their family from a tragic event and, possibly, give their heirs a leg up.

By the 1990s, the business was changing.

Under pressure from banks offering new retirement products including annuities, insurance companies decided to shed the cost of keeping large numbers of agents on their payroll. Rather than train, staff and equip insurance agents, the industry moved increasingly to a freelance model. "Independent" insurance agents paid for their own offices and expenses solely through commissions earned on the policies they sold. Insurance companies like Prudential, which once had as many as 18,000 agents, whittled their in-house force down to about 2,500.

The rise of independent agents was accompanied by the widespread transformation of mutual companies. Between 1985 and 2003, more than 20 mutual life insurance firms converted themselves into stock companies, most of which were traded on Wall Street. This process heightened the focus on quarterly earnings and eventually helped lead to an increase in executives' pay. Rising stock prices meant bigger bonuses.

The change in culture and incentives in the life insurance business created the perfect conditions for the arms race. It also made the business a prime target for Caramadre.

It wasn't until the 1990s that the growth of variable annuities took off. Between 1990 and 1999, the amount of variable annuities individuals purchased in the U.S. leapt from $3.5 billion to nearly $63 billion in 1999, according to the American Council of Life Insurers.

For the companies, it was easier to sell a product customers could use while still alive. Unlike life insurance, annuities did not require an expensive health examination. Life insurance was based on premium payments that remained steady. But the yearly fees charged on annuities, which sometimes topped 4 percent of the value of the account, would rise in line with those values. More money under management meant more fees, which buoyed the companies' stock prices and their executives' compensation.

Annuities were not a terrible idea. They fit a growing gap in the nation's pension system. The defined benefit plan, a retirement approach where the employer guaranteed a pension based on salary and years of service, was disappearing. From 1980 through 2008, the proportion of private sector American workers covered by company pensions fell from 38 percent to 20 percent, according to the Bureau of Labor Statistics. Meanwhile, a demographic bubble of baby boomers needed other retirement options. Annuities seemed to be tailor-made.

At Penn Mutual, Caramadre broke sales records, becoming at age 24 one of the youngest Golden Eagles — a recognition the company bestowed on top sales performers. Caramadre left Penn Mutual two years before the company ended its captive agent system. As an independent agent he could find better deals for his customers on the open market. He became a student of insurance products, deconstructing the product software provided by the companies, delving deep into the contracts. It became almost like scouting a ball player, he says.

* * *

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.

Why would ING give away free money?

It never expected to pay the majority of the benefits it offered.

The 5 percent was added to the death benefit, which was held in a separate account known as a shadow account. The insurance company only paid the shadow account if the policyholder died and the money — the million dollars — in the real account had shrunk to a lesser value.

The companies' models of customer behavior, which were based on data collected before the 2008 financial collapse, predicted that the death benefit would rarely be paid. Something would happen. Policymakers would take the money out for a big purchase, surrendering their account. If the policyholder annuitized — started taking a stream of monthly payments — the shadow account disappeared. In any event, the rising market made it likely that the account would outperform the promises.

But the models turned out to be the insurance industry equivalent of the housing bubble. When the market crashed, consumers began acting differently than they had in the past.

Perhaps the gaudiest of the benefits the companies never expected to pay was known as the "rachet." The idea was perfect for a steadily rising market. Say you had $1 million in your account in 2007 and your investment did well, boosting the value to $1.2 million. That amount would be set on a given date as your death benefit which you would be paid no matter what had happened to your investment.

If stocks cratered, as they did in 2008, and your account fell to, say, $600,000? The insurance company would still owe you $1.2 million when you died.

ING offered a quarterly ratchet — it set every four months — and charged only about a quarter of a percent annual fee to customers who wanted it. Many companies, including Nationwide Life and Annuity Insurance Company and Transamerica Life Insurance Company, offered monthly ratchets.

To differentiate themselves, companies also sold exotic investment options into which the buyers of the annuity could invest their funds. ING featured funds managed by reputable companies like Pimco, Fidelity and T. Rowe Price. Each fund carried a fee that ING split with the fund manager. While ING provided aggressive growth and real estate funds, many annuity companies went beyond that to give consumers a choice of funds that used derivatives to bet for or against the market, sometimes with multipliers, so-called double betas. For example, if the stock market plunged, investors could double their money.

"Double betas were crazy funds," says Caramadre. "It hyper inflates the problem."

Caramadre's first step was to make sure his clients qualified for every incentive. If there was a monthly ratchet and bonus, he might invest the funds in a money market account until the ratchet set with the bonus.

It was as if Caramadre was playing with the house's money and going straight to the blackjack tables. With decent gains locked in, he would take flyers on the riskiest investments possible. Sometimes, he would invest his clients' money in two variable annuities, one that paid out if the market went up and the other if it declined. It didn't matter. When the annuitant died, Caramadre's client, at the very least, would get both principals back plus the gains from whichever fund paid out.

Caramadre kept increasing the number of annuitants and placing big bets.

"It was pretty fun being in the market without the risk," he says.

* * *

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.

Investigators learned that most of the contact with the dying participants had occurred with Raymour Radhakrishnan, an employee Caramadre hired in the summer of 2007. A graduate of Wheaton College in Boston, Radhakrishnan was only 23 years old at the time. His job would be to interact with the annuitants: assess their health, explain the program, get their signatures and dispense the cash. Mainly, he would oversee a growing corporate bond program (Creation 19).

The bond program had similarities to the variable annuity scheme. Caramadre would buy certain corporate bonds on the secondary market. After the financial crisis, these bonds were selling at a steep discount. As a sweetener, the companies that originally sold the bonds had included survivorship rights for co-owners.

For example, if you owned the bonds with your wife and she died, you didn't have to wait decades to redeem them. The company would buy them back at full value. Caramadre would "co-own" the bonds with a terminally ill person. When that person died, he would redeem the bonds at face value, reaping the value of the discount.

Radhakrishnan is a co-defendant along with Caramadre in what the government contends was a vast criminal conspiracy. Reached through his public defender, Radhakrishnan declined to comment. He has pleaded not guilty to the charges.

Radhakrishnan's conversations with the terminally ill are at the heart of the criminal case against both men. Caramadre seldom met with the annuitants directly, but prosecutors allege that he instructed Radhakrishnan to deceive the potential annuitants. FBI reports, depositions and interviews suggest that Radhakrishnan told different stories to different potential annuitants. The most serious charges against the men involve allegations that they forged signatures.

One forgery count in the indictment involves Stephanie Porter's mother, Bertha Howard. In January 2008, Radhakrishnan met with Howard and Porter at Fatima Hospital where she was being treated for lung cancer that had spread to her brain and spine, according to Porter. Radhakrishnan gave her mother a check for $2,000 and explained how Howard might be able to get more if she signed more documents. The next meeting between Radhakrishnan and Howard occurred in a nursing home a few weeks later. Porter was also present. She says her mother, shaky and heavily medicated, struggled to sign some forms. There was no additional explanation from Radhakrishnan, according to Porter. A week later, Howard died. Shortly after that Radhakrishnan called Porter to tell her that the company would not accept the signatures so there would be no more money forthcoming. Porter said it didn't matter since her mother was dead.

But a bond account was opened under Howard's name nonetheless. On the account are signatures that Porter does not recognize as those of her mother. The indictment charges that they are forgeries. Caramadre says it was a mistake and documents he provided to ProPublica show that no money was ever put into the account.

The prosecution persuaded a judge to allow it to take depositions of dying participants in the schemes even though no charges had been filed at the time. Over a few weeks in hospitals and private homes, with tubes in their noses and a variety of high-powered medications in their blood streams, the annuitants testified that they did not understand the arrangement they had entered into with Caramadre and Radhakrishnan. Some denied writing their signatures on forms submitted to insurance and bond companies.

Caramadre believes the depositions show that the FBI and prosecutors misled witnesses and thus tainted their testimony. (See video clips from the depositions.) An FBI spokesman said the agency does not comment on active cases.

The Wall Street Journal wrote two stories on Caramadre's cases, one in February 2010 on variable annuities and another a month later on the corporate bond program.

Two months later, the National Association of Insurance Commissioners held a hearing on stranger-originated annuities. Thomas R. Sullivan, a former Hartford Insurance executive and the state regulator from ING's home state of Connecticut, chaired the meeting.

"This is about embarrassment," says Caramadre. "Nobody ever complained about what I did until the insurance companies and the FBI came knocking."

In November 2011, after almost two years of work, a Rhode Island grand jury issued a 66-count indictment against Caramadre and Radhakrishnan.

Their criminal trial is scheduled to begin in November.

Today, several of the companies Caramadre targeted have stopped selling variable annuities. ING has been forced to get out of the business and write down billions in losses. Others have had to boost their reserves. Transamerica is trying to buy back some of the variable annuities it sold to policyholders. The French insurer Axa is offering its variable annuity holders money if they surrender their death benefit guarantees.

Graphic by Al Granberg

Our country is being invaded from the southern border by the millions, we continue to have undeclared foreign wars for decades with no win yet & our govt. uses our tax dollars to go after this one man.  Where is the outrage?

Haven’t corporations been using “Dead Peasant” insurance policies for a long time?

How is this different from what the banks and MERS have done with our mortgages? Money out of thin air for them, illegal foreclosures for us.

A very long article, but a heck of a lot of fun to go through.  And I think one sentence above sums up the whole thing:

“[The company] never expected to pay the majority of the benefits it offered.”

That’s the crux of the problem and of insurance.

At its most altruistic, the whole point of insurance is that you pay them a monthly fee, and at some time in the future—guessed at by how much your premiums are—they pay you the money you paid them.  So, at the very best, they could be replaced by putting cash in your mattress.

More likely, it’s less, as they take administrative fees and (now) give you the return on mediocre investments.  And if they can get away with it, it’ll be much less, while they claim your cancer was actually your fault (a friend had to deal with that bombshell after his father passed away), or make up any story to avoid paying out.  I had a few coworkers (same area, same policy), years back, who were told that the home flood policy they’d been paying premiums on for years had been cancelled, the very day their houses flooded, for example.

All that’s fair game.  But Caramadre’s sin isn’t that what he’s doing is profiting from death (because they do, too), but that he’s making them pay what they owe, plain and simple, and he’s not one of the big boys.

Keep in mind that insurance companies have not tried to bring the investment banks on criminal charges, even when they widely admit that many of their biggest investments in the stock and commodities markets are insurance policies for or against something they have no intention of buying.

The industry is inherently fraudulent, and they’ll spend billions to bankrupt him through court fees and lost business to avoid having to admit it.  Why be right, after all, when you can run out the clock?  And the government will surely support them, since people seeing the fraud there might wonder what the value is in a bank that charges you to access your money while they gamble it away, or trading stocks that don’t pay dividends after the IPO.

(In fact, now that it’s officially Constitutional, perhaps a future President will push for a law requiring each of us to buy life insurance, to minimize the benefits to someone like Caramadre…)

It would’ve been nice if Caramadre paid the sick people MORE of the absurd profits, but otherwise, I don’t see the problem.

The Insurance Companies don’t like to be out smarted. I am glad to hear that someone made them pay!!!!!!!

Philip de Louraille

Aug. 24, 2012, 1:13 p.m.

You got it John. The last thing an insurance company wants to do is pay out. It is a protected racket. Indeed, Caramadre should have paid the sick people more but it does not seem (so far) that he committed a crime. Unless, of course, it is a crime to legally outsmart an insurance company.

My question is: Where’d he come up with the $2,000 figure?

Insurance companies and casinos.  Happy to take your money but as soon as they have to pay out big there is a problem and it is your fault even if you follow their rules.

The insurance industry has been robbing people forever.  This man just took a little for himself.  Where’s the crackdown on Big Insurance?

Ha!  The crooks who disguise themselves as legitimate, upstanding businesses got used by their own devices.  This guy is no hero but he is no different from the insurance companies themselves.  It’s ironic and sad that our government of the people will go after the people but not the corporations who cheat.

Doesn’t this about sum it up!  Wall Street, Banks, Insurance Companies can invent all kinds of crooked ways to scam the public, skirt the tax codes, circumvent the banking and securities regulations, and make millions (toxic martgage backed securites is one example; forged home foreclosure documents is another). Not one indictment despite the billions lost by investors. It’s called good business.  But let one private businessman come up with a clever exploitation of an insurance company’s own contract in which no one was scammed and watch how fast the governmetn can move on an indictment.  It just goes to prove that it is not a government of the people, by the people, and for the people, but of special interests, by special interests, and for special interests.  Hang in there Joseph; we are on your side!

I cannot see the crime here.  The annuitants were in hospices with relatives present and agreed to a fix fees of $2,000.00.  The insurance companies should be sued for harassment.

Thank you for making a complex story easy to understand.  For someone with not much knowledge of insurance business or annuities, the article was written so that I was able to understand and make sense out of it!

I think I’ll check with my financial advisor re: my annuity after reading this!

From all of the info presented in the article, and views expressed by commentors here, these big money corp’s are doing their best to buy the next election…to keep things as they are…for them. Special interest groups, “Citizens United”, and so-called charities, giving away billions…Why, because they can, no matter who has to suffer. As it was recently quoted, the wealthy Corp’s are doing “Fine”. Shall the rest of us have to purchase our own “Chains” too? (Or get them from the “Company Store”?)
I like to refer to an article that was published in “The New Yorker”, titled “Sold Out”, where there were records of major Corp’s and banks and how much was contributed to election funding and for who.

Good for you Joe!  Na-na-na-na-na-na to the insurance industry.  The biggest crooks in the world just got horn-waggled by their own greed. HAAAAAAA !!!!!!!!

Insurance companys are there to make money but not to give it out . Good luck to him .

I for one am sleeping better knowing they are going after this man.

After all what would be the point in prosecuting one of the Wall Street bankers who helped send the global economy into the toilet. I guess it could be that they could use their billions and lawyers to jam the works.

So this guy beat them at their own game and they are weeping crocodile tears with outrage.

I’ve had a really bad experience as a beneficiary of an annuity..  the insurance company took 60 cents of every dollar in “fees” and then reported to the IRS that what they ever so generously left behind was “income” and left me holding the bag on “taxes” from this “income”.

This “annuity” was funded from inheritance on which ALL TAXES were paid!!..  IN FULL!!  There was NEVER a question on the issue!! 

In fact they paid a $6000 commission to a financial planner who set it up!!  So for them to pretend otherwise is an intentional misrepresentation of a material fact!!

The insurance company knows and knew that at the time, the funds used to set up this thing came from a trust bank account I had no control over, never saw a statement from and never knew and still don’t know what bank, let alone what branch it was!!

As far as I’m concerned these “annuities” are no better than an investment with Bernie Madoff..  at least he didn’t leave anyone holding the bag with the IRS for what he stole from them.

So I have absolutely no sympathy for a bunch that’s writhing in greed over what they can suck out of someone who has no say in and no idea what they might do going in. 

It’s one thing to be a crook and another to take a parting shot like ratting someone out to the IRS when they’re DEAD WRONG!! 

If I owed any taxes it would be one thing but this WASN’T income!!.

Now I have a hell of a problem on my hands and these guys are whining in self-pity??  Jeez…  doesn’t get any better than that..

My advice to anyone with an heir, don’t “give” them an annuity!!.. 

If you really must, just substitute the insurance company as the beneficiary and get it over with.  That way your heir doesn’t get turned into some poor slob who has to struggle with the IRS!!

Then again, you never know!!  Who knows what they might do given the opportunity!!  In fact, don’t even let them know you have a heir!!  Just give them the money and tell them, “go away”!!

All this might not anything to do with Mr. Caramadre, he might not be such a great a guy but the people he’s dealing with are no better and more likely, are worse.

Michael Ormerod

Aug. 24, 2012, 8 p.m.

Bottom line, Mr. Caramadre did nothing wrong.

I totally agree with John.

It’s all a bet.  The insurance companies hire many mathematicians to determine the probability and statics of their intake vs outflow.  It’s a math problem to them, and of course they have the $ to fight your case, claim denials, make up excuses, etc… it all helps their bottom line.  Plus, the kicker is they get to collect fees.  It’s like vegas - the odds are always in their favor (and actually maybe better odds than what Vegas takes in).

To the people that feel that got ripped off, is it because you didn’t get the money?  You got the money up front.  This is the same concept as reverse mortgages - if the house value goes up, you can’t claim that… but you did get paid.

The guy did fine - except when he went hunting for signatures of dying people and didn’t tell them what he was doing.  For that, he deserves jail.

For screwing an industry that got greedy?  Congratulations.

For it describes an evil where no one and nothing is to blame, an evil that has so eaten it’s way into our civilization that political remedies are as useful as poulticing a cancer

Very interesting story on this on NPR’s This American Life. Google it and listen to the whole story on podcast. I don’t think prosecutors have a hope. He followed the law and apparently didn’t scam anyone.

What a waste of taxpayers resources to try to punish a guy who used the insurance companies own rules to make money. As with the investment banks who used subprime mortage bonds and CDO’s to make and then lose the billions of dollars that brought down the world economy (and who were later bailed out by US taxpayers), it’s impossible to feel any sympathy for the insurance companies.


Aug. 25, 2012, 11:28 a.m.

Mike Lofgren new book The Party Is Over :Contains these:

How Republicans went Crazy, Democrats became Useless, and the Middle Class got shafted”

“Norman Ornstein and Thomas Mann have recently published a book that confirms my personal observations about Congress in virtually every particular.

They depict the “rancorous partisanship and polarization”, use of the filibuster, the decline of legislative problem-solving in favor of grandstanding and confrontation, and the universal “domination of the institution of money”.  They do not fail to note the tincture of “craziness” that has overcome the GOP in the past decade, and particularly since Obama’s election

Nothing will be solved in Congress until we get the Money out of politics. And by that I mean all private money. Federally funded campaigns. The public can finance a much smaller sum of money to ensure that bribery and extortion do not corrupt the democratic process. With a small guaranteed sum to campaign with during the campaign season (perhaps labor day until election
day). In the UK they last less than a month and in Australia about six weeks

Fast forward to the era of Gingrich, Luntz and group tested political slogans.

These problems are not “givens”. They arose because of stupidity and lack of attention, and they are amenable to solutions we can devise.”

P.S. SBT—Swinney Big Three—

A.  Short term funded elections-no personal or outside money—

B.  Ban federal employees from receiving anything with a financial value-Burn tax book start over. Exemptions must serve a common good—The $1100B in exemptions allow a balanced budget plus.

C. Progressive Flat Tax—Tax Total Income limit adjusted with limited exemptions. Tax top down to pay our way. It is so dumb we borrowed 14,000B since 1980.
when we had an annual income of 14,000B. We could have easily paid our way by taxing wealth Fairly. We pandered the to the rich and their 20,000 lobbyists on K Street.
Clarence Swinney—Burlington nc
Lofgren spent 28 years in Congress. Last sixteen on Budget committees.

I am sympathetic to the woman at the end of the piece for her loss, but what exactly does she think life insurance if not putting a dollar amount on someone’s life? Clearly that’s not inherently repugnant to people and I am guessing she sees no immorality in having life insurance where your your family benefits if you die. I understand that in this case it was a stranger who invested and a stranger who benefited, but the connection of dollars to death she says she finds so problematic is essentially the same. For my part, I see this as a (legal) con of the insurance companies - and I cannot think of a more worthy target.

Aurora Lederman

Aug. 25, 2012, 12:15 p.m.

I heard about this on This American Life, and frankly, I’m incredibly diassapointed that this “loophole” has been closed!  I have a 74-year-old friend in poor health and in poor financial condition.  Receiving $2000+ from such a transaction would have been a boon to her.  All the rhetoric about it being a scheme to capitalize off “the dying” is santimonious and uber-pious.  In no way does it sound illegal to catch insurance companies at their own game.

What angers me most about this case is that the FBI agents misrepresented what was going on (saying “made millions” when only $10,000 was invested in one instance) to the annuitants to get them to turn on Caramadre.  Someone should be prosecuting those FBI agents.  Without angry annuitants, this case would never go anywhere.

Someone should question the nursing homes, doctors etc.  that gave him access to their patients. Other than that, he seems to have simply beaten the insurance scammers at their own game.

Cynthia Bauman

Aug. 25, 2012, 12:38 p.m.

I agree with Dan D.  Also I don’t understand why people are so upset when their “beloved” received at least $2,000 and it cost them nothing.  I congratulate someone who can beat the system and I hope Caramadre comes out a winner.

I am a former actuary and have a few technical comments. I know that insurance companies went to great lengths to make sure that annuities with guaranteed death benefits were approved by state insurance as a
‘annuities’ and not as ‘life insurance.’ The reason behind this had much to do with tax considerations, partly for the company and partly for the client. Also, the little bit of insurance law and its history I studied covered the concept of ‘insurable interest.’ If I remember correctly the body of written and common law built up around this concept pertains to life insurance and not to annuities, because the annuities had a life contingent portion that was ‘incidental to’ the purpose of the contract.

The program correctly points out that the insurance company had only to revise some of its fine print to include an insurable interest clause, or to specify that the annuitant be the investor or someone in whom the investor has an insurable interest to extract itself from this problem. The insurers will have a tough time in court on any suit they may institute because insurance and annuity contracts fall in the class of ‘contracts of adhesion,’ meaning that one party drafts the document and the other party has only the option to sign or not to sign, without negotiating rights. The party drafting the document is assumed to have looked out for its interests, and to the extent they fail to do so, tough luck.

As for the criminal charges, well, this is how the insurers avoid directly suing, with the problems cited above. I for one am outraged that the Justice Department is being used this way, but unfortunately, this is not new. There appears to be a very cozy relationship among government, big business and wealthy individuals. Even wealthy individuals have to be watchful not to rock the boat too much as people from Martha Stewart to Al Capone to Bernie Madoff have learned the hard way.

Joel Friedland, CPA

Aug. 25, 2012, 1:10 p.m.

The article and broadcast did a great job explaining what all this is about.
Thank you.

Seems to me that I remember that ING was part of the government bailout. So really, the taxpayer has paid for these scams—once again!
Moving money from the bottom to the top is out of control….

Let see, the most recent conundrum is How do you define “Rape”

Shame on the investigators for insensitively stirring up feelings of loss and re-framing the perceptions of family members they interviewed such that the families now feel that their loved ones were treated as commodities, by misrepresenting the nature of Mr. Caramadre’s contractual relationship with them!  The loss of a loved one is a painful, complex, and life-changing experience; suggestive interviewing prompting family members to re-write the end-of-life time with their loved ones, is cruel and reckless.

The essence of Mr. Caramadre’s offer was NOT ‘profiting from their death’ - as suggested by the ?FBI interviewers and by sensationalist news reporters - but rather, the essence of the offer was profiting from the insurance companies’ oversight in how they wrote their variable annuity contracts.  All non-corporate parties involved were enjoying the spoils of the insurance companies’ oversight.

At the time of the actual deals, the terminally ill people and their families appear to have had very positive feelings of getting extra money, and that they were enthusiastic to get this money (giving them extra spending power, perhaps some dignity as expressed by a family member, etc).  From the information provided here, and on the ‘This American Life’ segment, it doesn’t seem that the ill or their families were concerned about (1) negotiating for more money for their signatures, nor concerned about (2) the extent of financial benefits that their signatures would bring to Mr. Caramadre or his investors.  It seems to me that the above are key points to be considered if any allegations are to be made of treating the annuitants unfairly.  It doesn’t seem that the ill or their family members were hoodwinked or manipulated, received distorted information, nor tricked into taking on risk or future financial obligations. 

I am a very compassionate person, and I am not basing my comments on simply the black-and-white contract of agreement between Mr. Caramadre and the ill;  it seems to me that the only slighted party involved was perhaps the insurance companies (but any complaints on their part of questionable morality would clearly be a contradiction of their actions - including all the incentives that they were offering to investors of these variable annuities!).  It seems to me that the investigators have turned a positive relationship into an inaccurately ugly and hurtful one.

It isn’t clear how investors made money off the loophole discovered by the lawyer. The lawyer himself made money on fees and commissions, but, according to the story, the only thing investors got was their money back when the annuitant died. They put a million dollars in; maybe the annuity lost money; the annuitant died; they got a million dollars back. If the annuity made some money, then they made some too. It hardly sounds like a get rich quick scheme. It was more like don’t-get-poor slow.
Insurance companies now sell indexed annuities which work the same way, without a terminally ill annuitant (without annuitization at all, in fact). They are a form of fixed annuity in which the principal is linked to a market index, but not actually invested in it, so if it goes down there is no loss; if it goes up, the annuity owner gets a gain.
I repeatedly heard the phrase “profiting from death”, but it was more like not losing money from death” since no one was guaranteed a profit; they were guaranteed not to lose the original annuity premium.
There actually is a way to profit from someone’s death and that’s viaticals – which are now better known as life settlements. This is where I’m sick or terminally ill and you offer to buy my million dollar life insurance policy for $100,000 in cash (or whatever I will accept because I can’t afford the premiums or need the money or whatever). Then I die and you get a million dollars. Because you are now the owner, beneficiary and payor of my policy (while I remain the insured), you now have to pay the premiums, so the sooner I die, the greater your profit.

Good Job Linda This Kills me and the Insurance Companies in different way’s The truth is a beautiful thing! i have seen similar scenarios at Co’s I’ve worked for

The essence of Mr. Caramadre’s offer was NOT ‘profiting from their death’ - as suggested by the ?FBI interviewers and by sensationalist news reporters - but rather, the essence of the offer was profiting from the insurance companies’ oversight in how they wrote their variable annuity contracts.  All non-corporate parties involved were enjoying the spoils of the insurance companies’ oversight

I get where people who are grieving are upset by any tendency to normalize death, when their worlds are completely undone by the death. But if this is the worst that this woman experienced in how people treated her dying mother or her mother’s death, then she is doing well in my experience. For the most part, the dying/death industry in the U.S. is horrendous and inhumane, from “nursing” homes where our elderly are treated far less humanely than dogs in pounds, to the unending schemes aimed at stealing their money, to the insurance companies’ tactics to avoid paying money.

It appears that here people were given a chance to kick back at an industry that is ruthless in its dealings with its “customers”. That they were given substantial money regardless of signing seems like a good faith gesture. That they were compensated to the tune of ~$1,000/signature seems quite good, especially when one considers how much less Mr. Caramadre could probably have gotten away with paying and that not all the investments would have made any money beyond interest at all. I suppose it would’ve been nice if he’d also used his money to open one account per person and given their survivors any money earner, but that seems more complicated (which one to decide on? Who helps them with the taxes/etc.? Is it set up so that it’s in their name? How does one deal with the inequality in compensation then?).

Would it be lovely if we took care of our dying (and their caretakers) and surrounded them with all the love and material goods they needed during a difficult time? Yes. But we’re so far from that that a man who pays dying people for their signatures on a financial scheme that gets back at a cruel and greedy industry CLEARLY has the moral high ground.

The Feds are straining at a gnat in this case while the investment/insurance industry [in bed with Congress] screws the public all the time. I no longer have any investments because of 3 unscrupulous salesmen and now what I have left is sitting in a bank earning 1%. The insurance Industry deals in death all the time for profit. They’ve denied people treatment and let them die because it cuts into their bottom line. The profit motive can make people do evil things and for the investment companies to be outraged that they’ve been duped falls on deaf ears in my case. To hell with them all.

lets say The whole is Equal to the sum of it’s parts what is Immoral, unethical, Illegal about this?

Hunger is a dreadful Plague no doubt, yet who digest’s or thrives without?

You do not can not have one without the other Life and Death are one thing, not Two! People need to be able to do such a thing as this man pointed out   we are all going to die why not be able to fulfill a need on both ends?

David Wells

Aug. 25, 2012, 4 p.m.

What makes it immoral is the signature payment can be incredibly small comparatively. The dying aren’t aware of the extent of profit being made off their death, and thus aren’t able to judge appropriately how much their signature is actually worth.

Fix that, then negotiate their payment, and there is no immorality.

Mr.Caramadre in my opinion appears to have been working within the law and the terms of contracts (authored by the Insurance Companies); he paid the required fees and paid the annuitants. No one lost any money until the insurers started to lose money due to conditions in the general market. Up to that point, the insurance companies seemed only too happy to accept Mr Caramadre’s business. The moral issue of profiting from death may be disconcerting, but in this case, the greatest participants are the authors of the ‘death benefit’ themselves, the Insurance Companies.

Where do i sign The dying are going to dye no way out of that The fact that
the person knows or not does not change anything   “You can’t take it with you”  yes they could get more money “How much”  there is nothing Immoral
about this unethical maybe I perceive only that people have a childish view of death because no one knows for certain what happens

I have just heard Ira’s NPR’s program “This American Life” on this subject—excellent!
I need not say anymore than, “I do NOT disagree with the last dozen comments”... double negative, I know!
Well done, ProPublica & NPR.

Donald E. Schreiber

Aug. 25, 2012, 5 p.m.

Another variation on Caramadre’s scheme occurred in San Francisco during the 1980s at the beginning of the Aids epidemic.  At that time there were advertisements in the newspaper seeking Aids victims who owned life insurance policies.  The deal was that an Aids victim would sell his life insurance policy to an “investor” for a fraction of the policy’s face value.  The “investor” would then become the life insurance policy’s beneficiary entitled to collect the policy’s proceeds when the Aids victim died.  Unfortunately for the “investors,” improved treatment of Aids victims began prolonging their lives which meant that the investor couldn’t collect the life insurance policy’s proceeds as quickly as anticipated so the scheme lasted for only a short time, perhaps a year or two.

If profiting from a person’s death were outlawed, then under the Supreme Court’s Citizen United decision enterprises and individuals such as Mitt Rommey’s Bain Capital would be put our of business.  Businesses such as Bain Capital would be prohibited from buying up dying corporations, i.e. persons, to profit by dismembering the corporation and selling the corporation’s body parts to the highest bidder.

Profiting from the death of financial investments is precisely why Mitt Romney opposed the auto industry bailout and favored home foreclosures.  Obama’s saving of the auto industry denied enterprises such as Bain Capital of a major opportunity to profit by dismembering the rankrupt automobile companies.  Similarly, home foreclosures offer enterprises such as Bain Capital an opportunity to acquire property as distressed prices and then later resell them at a significant profit.

About 10 years ago all of Genentech’s stock was repurchased by the corporation only to be followed by an Initial Public The subsequent offering of Genentech’s stock about a year or two later was at a price approximately twice that when the stock was repurchased.

I have heard a rumor that few farmers in the San Joaquin Valley own the mineral rights under their property.  What I have heard was that when banks acquired such property during the Great Depression they stripped off the mineral rights before reselling the property.  That way, if a valuable mineral, e.g. oil, were discovered beneath a farmer’s property the bank, rather than the farmer, would profit from the discovery.

I know this was tongue in cheek but right on.

“If profiting from a person’s death were outlawed, then under the Supreme Court’s Citizen United decision enterprises and individuals such as Mitt Rommey’s Bain Capital would be put our of business. Businesses such as Bain Capital would be prohibited from buying up dying corporations, i.e. persons, to profit by dismembering the corporation and selling the corporation’s body parts to the highest bidder.” 

That would be poetic justice I’d say.  SCOTUS would have to ponder that absurd decision for a long time for its unintended consequences.

I don’t quite understand why Corporate America - that is, the executive suites, corporate boards, and lobbyists of Corporate America - feel that they should be the only ones entitled to discarding all moral and ethical constraints and restraints???

They set the example…now nobody but the corporation-as-“people” is supposed to follow it?

Very Good comment from Johnathan! The Insurance Companies are actually the writers and framers of the whole kit-N-kaboodle if they are to “go after” someone it will inevitably lead to them or should or perhaps i am assuming that Justice will take place? the only thing Mr.Caramadre did was to read the “text” and use the “rules” he was a messenger of the rules, not the maker. He is in a sense a Free market hero! i have seen people such as this get shit on at Companies i have previously worked for Only for the
the fact that they have pointed out what needed to be done, did it and now they the co C.E.O don’t want to give credit where it is obviously due because it would cost them more to step forward and admit (not Defeat) but live up to there own rhetoric “Customer service” so on and so forth.

I love this guy
(Assuming that he never committed forgery).

How many people in Vegas have sputtered this: “but…but…but.. that wasn’t supposed to happen!” when the dice came up 7 or they got dealt 22 in blackjack. And the casino says “them’s the rules, thank you very much for playing.”

It sounds to me like the insurance companies are sputtering “but…but..but.. you aren’t supposed to do that!” The key difference is that insurance companies made the rules themselves! They have only themselves to blame. I, for one, love to see them take a hit.

As for the dying, $2k before you die is better than $0 after you die, even if someone else makes more than you do.

Get Updates

Our Hottest Stories