Miss. Dealt Setback in Bid to Link Vatican to Frankel Fraud

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A federal appeals court in Jackson has tossed out one of the state of Mississippi’s theories that the Vatican was connected to the fraud scheme of financier Martin Frankel.

State Insurance Commissioner George Dale sued the Vatican in 2003, claiming it was liable for the actions of Monsignor Emilio Colagiovanni.
Colagiovanni was given a suspended sentence and five years’ probation on Mississippi charges related to his role in Frankel’s theft of $200 million from insurance companies in five states. Colagiovanni pleaded guilty to one count of conspiracy for attempting to deceive regulators about the source of the money Frankel used to buy one of those insurance companies.

Frankel bought insurance companies in Mississippi, Tennessee, Arkansas, Missouri and Oklahoma, then stole their assets to finance a wealthy lifestyle that included a two-mansion compound in Greenwich, Conn. He was a fugitive for months after the scandal broke in 1999 before he was captured in Germany.

Frankel had formed a bogus Catholic charity, the St. Francis of Assisi Foundation, in 1998. To throw insurance regulators off his trail, Frankel sought to use the foundation to launder money through a legitimate Vatican charity headed by Colagiovanni.

Colagiovanni agreed to use Monitor Ecclesiasticus and its Vatican bank account to handle money from St. Francis and to vouch for Frankel’s charity with regulators. In exchange, Colagiovanni was to get $5 million to use on charitable projects. The Vatican denied ever endorsing or cooperating with Frankel’s scheme, according to court records.

Dale argued that the Vatican violated the federal Racketeer Influenced and Corrupt Organizations Act. Insurance officials from Tennessee, Oklahoma, Arkansas and Kansas joined the lawsuit.

Alan Curley, a Chicago attorney representing Mississippi, said Friday that the lawsuit alleged three theories of the Vatican’s involvement. Curley said one was that the Vatican directly ordered the priest to get involved; another that it after-the-fact ratified the priest’s actions; and the third, called apparent authority, that the priest acted under the trappings of the Vatican.

The Vatican asked U.S. District Judge William H. Barbour Jr. to dismiss the lawsuit on grounds it could not be sued under the Foreign Sovereign Immunities Act. The 1976 act restricts when foreign states can be sued in American courts, although it provides exceptions, such as when the foreign states engage in commercial or certain harmful activities in the United States.

Dale countered that Colagiovanni acted under the apparent authority of the Vatican and those actions fell under the commercial exception.

In 2004, Barbour ruled the Vatican could be sued on the issue of apparent authority. The Vatican appealed to the 5th Circuit.

The 5th Circuit, in reversing Barbour, said Dale’s evidence was insufficient to support the commercial activity exception based on apparent authority. The court said Dale needed to show that the Vatican directed Colagiovanni’s activities to advance its case on that issue.

Last Thursday’s ruling was issued by a panel of three 5th Circuit judges: Thomas M. Reavley, Eugene Davis and Jacques Wiener. It was written by Davis.

Curley said the apparent authority issue was the most difficult of the three to prove. He said that leaves actual authority and ratification on which to go to trial.

“It is a factual issue at this point if we can show —as a factual matter — that the monsignor was authorized (to deal with Frankel) then we should be able to get to trial,” Curley said.

“We have alleged he had meetings with high officers of the Vatican and told them what the plan was and he was authorized to proceed,” he said.

Alexis J.N. Haller of San Francisco, the attorney for the Vatican, did not immediately return calls for comment on the case.