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Betty Cordial, president of Vista Consulting Group Inc. of Glenview, Ill., is a leading expert on insurance insolvency and fraud issues. She provides receivership advice to state regulators and acts as a special deputy receiver overseeing rehabilitations and liquidations. Since 1985, she also has been a consultant for the National Assn. of Insurance Commissioners, representing the NAIC with state, federal and international law enforcement agencies.

She has conducted insurance fraud training seminars for the FBI and in 1996 traveled to Poland on behalf of the U.S. State Department and FBI to help train Polish law enforcement officials in fighting international white-collar swindlers.

Ms. Cordial, 52, got started in this line of work by "cleaning up after these guys" as an official of the California Insurance Department's conservation and liquidation division, where she handled 38 insolvencies between 1971 and 1982.

She recently discussed insolvency and fraud issues with Senior Editor Douglas McLeod.

What was the toughest case you've worked on?

Probably one of the longest-running was the Bramson family case. It's been going on 18 years.

They were originally from Chicago. The father, Norman, appeared to be a small-time swindler. He had previous convictions for running gambling operations and other types of swindles. He also worked as a building inspector. He was charged with soliciting bribes on inspections.

His son Martin was actually a police officer in the City of Chicago. He was only on the police department a couple of months, and then they found out that the day before he'd been sworn in, he'd been convicted of having sex with a minor. Marty was fired by the police department. Later, he ran a whole string of drugstores in the D.C. area and was arrested and convicted there on what D.C. police described at the time as one of the biggest illegal drug distribution schemes in the District.

Another son, Leonard, was actually an attorney in the (Cook County District Attorney's) office here.

The family first set up a Bahamas company called International Bahamian Insurance Co., and they started marketing through newspaper ads offering podiatrists' coverage throughout the country. From the Bahamas, they went to a number of different domiciles, adding to the number of companies they had.

It was a horrible case. There were people who were really injured. I remember one claimant in particular: A doctor had made a mistake during some surgery, and she had to have her feet amputated as a result of it. The doctor ended up declaring bankruptcy. She never got any money. There are a lot of horror stories out there.

This continued to escalate until some time in 1989. At that point, I received a call from the New Jersey Insurance Department. They wanted to know if we had any information on some people who had supposedly taken over an insurance company in New Jersey without getting proper approval. The department got the names of these people and wondered whether we had any information. The names that they gave were known aliases of the Bramson family: Marty Martin, Hans Martin -- Martin Bramson used all kinds of names.

It just so happened that by being in New Jersey, they were in a jurisdiction where we had the most experienced FBI agent on insurance fraud in the country.

Bad luck for them.

So I called that agent and said, "Remember that case I've been talking about for almost 10 years?" And he said, "Oh yeah, I sure do."

"OK, you owe me on this one. It's now in your jurisdiction."

We worked extensively with the Bureau helping them develop the case. I think probably one of the most gratifying days of my life was when we arrested and served the search warrants on them.

How big a problem are fraudulent insurance companies like the Bramsons', compared with the widespread problem of fraudulent claims?

Overall, it's a smaller dollar problem, but in my opinion it causes catastrophic losses.

Certainly I don't mean to diminish the claims fraud issue. The cost of claims fraud is recouped through rate increases, so it certainly impacts every insurance buyer in the United States. But the internal fraud, the unauthorized insurer fraud, causes huger catastrophic losses to the policyholders and victims.

There were hundreds of millions of dollars of unpaid claims during the Los Angeles riots (because of fraudulent offshore insurers).

How good are regulators and law enforcement people at fighting these frauds?

I think regulators addressed the issue as soon as they became aware of it. Unfortunately, a con man doesn't pay much attention to a cease-and-desist order or an injunction. They're not operating in compliance with state laws, so why would they pay any attention to an order that's issued by an insurance commissioner? They generally just ignore them.

Why aren't they in jail? Why do the same swindlers surface over and over again with new companies?

They move between states so quickly that by the time states find out about them, issue the orders or close them up, they're already gone. They've moved across the border to another state. As a result of that, these types of fraud issues are more appropriately addressed by federal law enforcement. It's an interstate and an international problem.

It's also very difficult to get these cases prosecuted on a state or local basis. For instance, in many states, attorneys general don't even have authority under the state law to prosecute cases. They act as the civil attorney for the state; they do not have authority to prosecute (criminal cases).

These are complex cases. Unless you've got a lot of victims concentrated in one particular county, the local district attorney or prosecutor isn't going to be interested.

Then you get into the issue of priorities and what's important. What is the focus of the U.S. Attorney's offices across the country? What crimes have been targeted as the crimes they're going to work on?

Generally, insurance fraud cases take quite some time to put together and get ready for a trial. And if you have an assistant U.S. attorney that can do a quick bank robbery or drug case compared to spending six months or a year putting a white-collar crime case together. . .that's just what happens.

We just do not have, in my opinion, enough federal prosecutors that are interested in pursuing these types of cases.

Have you had cases that died in the prosecutor's office?

Yes. I can even think of one case where a person had agreed to enter a plea bargain and prosecutors just never got around to drawing up the agreement.

I'm looking forward to Section 1033 (the 1994 federal insurance fraud statute) being actively used by law enforcement and by prosecutors.

Traditionally, all of these cases have been prosecuted generally under mail and wire fraud charges, and this provides for a federal prosecution for -- among other things -- submitting false information to regulators. But it also prohibits anyone who has ever been convicted of a felony involving dishonesty or breach of trust from ever again being involved in the business of insurance.

Do state regulators and federal agencies cooperate with each other?

Absolutely. And I think that's increasing. At the NAIC, we have a federal/state coordinating working group -- we meet quarterly -- and I think that's one vehicle we've used to create cooperation between the states and the federal law enforcement agencies. We always have federal law enforcement representation at every one of these meetings, and multiple agencies -- the U.S. Postal Inspection Service is always there, the FBI is always there, labor racketeering is almost always there, IRS has just started to come. But we actually get together and discuss cases of mutual interest, give them specific cases that we think are especially egregious.

In addition to that, there are also regional task forces that were started three or four years ago, and I think those have been very successful.

Can state insurance regulators do anything to prevent insolvencies of U.S.-licensed companies caused by insider fraud? How much of that is visible to regulators in the normal course, and how much can be stopped?

I certainly think administrative supervision is a very valuable vehicle used by regulators, whether a state actually has the administrative supervision model law or whether it's contained in some other provision of their code. If the commissioner finds that there is wrongdoing occurring at a company, certainly administrative supervision is a valuable tool to address that.

Why is it valuable?

Because it gives the commissioner the ability to actually oversee what is going on at the company. They can place their own representative at the company to oversee management.

There are different levels of administrative supervision: The commissioner's representative could actually sit there and approve every check that goes out and sign off on every single transaction the company gets involved in, or could just generally oversee the company and watch the bottom line.

You have this problem: You can put a company in rehabilitation, but realistically, when that becomes public, it's going to be the death knell for the company. Very few companies placed in rehabilitation are actually able to come out, because when it becomes public, the agents take their business somewhere else.

Some failed U.S. insurers have collapsed despite having clean audit or actuarial opinions from outside accounting firms. Are professionals held sufficiently accountable for these failures, and has this changed?

The services provided by professionals are integral to the regulatory scheme. Regulators rely on the opinions offered by professional firms. Every year, there are proposals being presented to limit liability (of professionals). But take a look at who's presenting those: the self-interested professional groups. If they are offering services that are relied upon by regulators, then they should have to answer for those opinions.

I certainly think, at this stage, that professionals (are held responsible). I can go back to the early receiverships I worked on, in the early 1970s in California, when the liability of outside professionals or other third parties was just sort of ignored. We never aggressively pursued the negligence or errors -- or in the case of some third parties, wrongdoing -- of outside parties. When a company was placed in receivership, it was a much simpler process.

You just change the locks on the doors, collect all the money you've got, distribute it to the policyholders and that was it.

But that changed when you saw the number and effect of the insolvencies that occurred over the past 10 years, and also how much it's cost the industry for guaranty fund assessments. There's a more vigorous and aggressive effort to pursue parties that contributed to the insolvencies.

Swindlers are very creative people. Do see them developing any new scams?

Certainly they always become involved with any hard-to-place risk. You go back to the early 1990s and you saw traditional property/casualty con men all of a sudden going into the health care business. Another area where you always see them is where there are mandatory coverages or where certification is required in order for a company to operate.

Certainly we are seeing a lot more problems with bonds: It's a booming market out there, and the con men see small contractors that need bid bonds and performance bonds -- need proof of coverage -- and they're right on the spot.

Every time you have a program set up by Congress that involves insurance, it's usually immediately targeted.

It goes back to the whole ERISA/multiple employer welfare arrangement issue; that has progressed now, and there are enough controls in place after 20 years for regulators to address MEWAs. So now the new spin is the union health care plans and the phony unions.

Also, I've had two calls in the past month on known con men that are setting up medical savings account businesses: They're going to provide the coverage, and they're also providing the vehicle where the MSA (funds) will be deposited.