International Swindle Guts Old Southwest

by Michael Whiteley  on Monday, Mar. 31, 2014 12:00 am  

A version of this article originally appeared in Arkansas Business on Aug. 2, 1999. It is being republished as part of Arkansas Business' 30th anniversary issue. You can access the digital edition for free here.

Even as regulators in Virginia and Mississippi mapped the financial fissures gaping beneath Franklin American Life Insurance Co. last February, company executives were in Little Rock winning approval for their final acquisition.

Seven days after a merger approved by the Arkansas Insurance Department between Franklin and tiny Old Southwest Life Insurance Co. was to have taken effect, someone in charge of the Jacksonville burial insurance company wired $5.2 million of Old Southwest’s assets to the Franklin, Tenn., bank of its new parent company.

Converted for a few minutes into a cashier’s check, the bulk of Old Southwest’s assets were wired again from a Franklin bank to a “sham” New York investment account controlled by fugitive financier Martin Frankel.

The April 6 transfer gutted the reserves of the four-decades-old Jacksonville company and made Arkansas a minor player in a scandal that has broadened to include $350 million in missing insurance assets, ensnared Catholic charities tied to the Vatican and spawned an international manhunt.

The fallout is growing, along with questions of who in government knew of Frankel’s involvement and could have intervened.

In fact, Virginia’s insurance commissioner is suing his Mississippi counterpart over whether investigators withheld information that could have diverted the wire transfer of $45 million from a Virginia-based burial insurance company three days after Frankel’s associates looted Old Southwest.

Arkansas Insurance Commissioner Mike Pickens says he’s not troubled by the actions of state regulators, even though Tennessee insurance officials gave Franklin American a clean bill of health just prior to Arkansas’ approval of the sale on Feb. 24, 1999. He says Tennessee didn’t know any different at the time.

“I think a lot of the criticism that the Tennessee department has sustained really is unfair,” Pickens says. “I have a lot of questions for federal regulators.”

Alerted by Mississippi Insurance Commissioner George E. Dale, Arkansas joined regulators in six states to put Franklin American, Old Southwest and six other companies networked under the name Thunor Trust into receivership.

All six, including Old Southwest, were tied to a “custodial,” an unlicensed securities broker working under the names Frankel, David Rosse and Eric Stevens.

Most have been gutted by what regulators say was a plot to steal at least $350 million from insurance companies stretching from Oklahoma to New York.



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