The newspapers are filled with long and confusing stories about an alleged financial scoundrel named Martin Frankel. Here is the gist of the allegations:
Frankel was a small-time money manager. In 1991, he helped establish an investment fund called the Thunor Trust. Over the next four years, Thunor spent $71 million buying insurance companies--mostly small, financially troubled companies specializing in burial coverage for the poor. Investigators don't yet know where the $71 million came from.
Insurance companies collect premiums from customers and invest the money until it has to be paid out. Buying the company gives you control of a pile of money often larger than the purchase price (since that price reflects the fact that benefits will ultimately have to be paid). Thunor's publicly stated strategy was to make these companies more successful by improving the return on their portfolios. Frankel is believed to have directed all the companies' funds to Liberty National Securities, an unregistered brokerage he ran from the living room of his Connecticut mansion. Frankel kept the companies happy with apparently bogus statements that showed market-beating returns. By this spring, Frankel was managing $335 million or more through Liberty National.
Investigators now suggest that little of this money was ever invested on behalf of clients. An FBI affidavit alleges that Frankel diverted the assets "into accounts in and outside this country under his control and for his use ..."
Last year, ownership of Thunor Trust was transferred to an entity called the Saint Francis of Assisi Foundation. After convincing two Vatican officials to vouch for the organization, Frankel lobbied Lee Iacocca (whom he flew to Italy on a private plane) and Walter Cronkite to serve on its board of directors. Though both eventually declined, Frankel allegedly continued to use their names in publicity. This March, accountants valued the foundation's assets--some of which were managed by Liberty National--at $1.98 billion.
Frankel's purported scheme began to unravel earlier this year as state regulators grew suspicious of the concentration of funds at Liberty National and ordered that hundreds of millions be returned to the insurers. Unable or unwilling to comply, Frankel fled the country in May and, the FBI suspects, set fire to his mansion to conceal evidence. (He is believed to be hiding somewhere in Europe.) Several of Thunor's insurance companies are now in receivership. As for the St. Francis Foundation's $1.98 billion, investigators say the money is gone and may never have even existed.