White Collar Crime Report
National Heritage Life Insurance Company
Report ID: R409
May 5, 2000 National Heritage Life Insurance Company
The National Heritage Life Insurance Company (NHLIC), a Delaware domestic insurer with 35,000 policyholders that operated from Orlando, Florida, was placed into liquidation in 1994, and was taken over by regulators. Through a series of complex financial transactions, the finances of thousands of policy holders, a majority of which were Florida retirees, were crippled to the tune of $439 million.
The investigation conducted by the FBI and the Internal Revenue Service, with assistance from the United States Postal Inspectors, began in July 1994, and determined that as far back as 1989, a number of people used a variety of schemes to defraud NHLIC and its parent company, LifeCo Investment Group (LifeCo), of money and property, and to defraud shareholders and policy holders of their right of honest services from their offices, directors, attorneys, and committee members.
In May 1992, Michael Blutrich, a New York attorney and outside counsel for NHLIC and Patrick Smythe, former NHLIC president and LifeCo chairman, transferred $837,000 of NHLIC's funds to Jay Bartz, another former LifeCo official. Bartz was later instructed by Smythe to forward the money to the Cayman Islands. By September 1992, NHLIC needed another infusion of assets. A company controlled by Lyle Pfeffer, a New York investor who bought millions of dollars worth of NHLIC mortgages, took over management of $15 million of the insurer's funds. He offered to purchase $11 million in NHLIC stock in return for which Pfeffer wanted to manage another $20 million of the insurer's assets. The $20 million was transferred to another company controlled by Pfeffer and Blutrich who then used that money as collateral for a credit line at Standard Chartered Bank in New York. Standard Chartered Bank was used to purchase securities and investments for the other criminal defendants but ultimately foreclosed on the stock and cash that was used for collateral.
Sholam Weiss, a New York businessman, used overvalued mortgages to purchase NHLIC assets. He directed his associates to create shell corporations that were used to launder money and hide illegal transactions, and paid bribes and kickbacks to those who assisted him. He conspired with Smythe, Blutrich and Pfeffer to conceal information on NHLIC losses from insurance regulators. Weiss' attorney became his money launderer. By May 1993, NHLIC learned that most of the $47 million the insurer believed was invested on its behalf in New York was gone.
In 1995, Jay Bartz, a former LifeCo official, pled guilty to charges of money laundering and cooperated with investigators. In July 1997, Smythe, Blutrich, Pfeffer, Richard Herman (a former law partner of Blutrich), and Weiss were indicted by a federal grand jury in the Middle District of Florida. A nine-month trial resulted in the conviction of Weiss on 78 counts of racketeering, wire fraud, interstate transportation of stolen property, money laundering, and filing false documents. Keith Pound, an Illinois mortgage broker who headed the mortgage division of LifeCo and helped to purchase mortgages with stolen money, was convicted of 76 similar counts. Guilty pleas were obtained from Smythe, Blutrich, and Pfeffer. Herman was acquitted of all charges.
On February 15, 2000, U.S. District Court Judge Patricia Fawsett, Middle District of Florida, sentenced Pound to 740 years in prison. She then sentenced Weiss to a total of 845 years in federal prison and ordered him to pay a $123 million fine and $125 million in restitution. In handing down the sentence, Judge Fawsett stated that "[Weiss] has shown a disrespect of the law" and should be removed permanently from society.
The six year investigation resulted in a total of 16 convictions, $930 million in court ordered fines/restitutions, and $100 million in forfeitures. Bank records were obtained from at least nine foreign countries, including Great Britain, Canada, Switzerland, the Cayman Islands, and Israel, through the Mutual Legal Assistance Treaty process. The corporations involved have been indicted and civil actions are pending against them.
On October 18, 1999, the first day of jury deliberations, Weiss failed to appear at the federal courthouse. A bench warrant was issued for his arrest and his bond was revoked. Weiss has international ties and is believed to have millions of dollars of resources at his disposal. He remains a fugitive and the FBI has offered a sizeable reward for information leading to his arrest.
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