GSA Report Faults State Regulators in Frankel Case

September 19, 2000

The General Accounting Office (GSA), Congress’ investigation agency, is scheduled to release a report today to a House subcommittee blaming state regulators for failing to prevent fugitive financier Martin Frankel from defrauding an estimated $200 million from insurance companies he controlled.

According to a report in the Associated Press, the GSA states that, “If state regulators paid more attention to the purchases of insurance companies by a firm controlled by Frankel, they may have detected his alleged scam earlier.”

Frankel, who remains in jail in Germany after pleading guilty to smuggling and passport violations, is fighting extradition to the U.S. where he faces multiple charges of embezzlement. The GSA report cites numerous instances of alleged lax oversight by insurance departments in Tennessee, Mississippi, Arkansas, Oklahoma and Missouri where Frankel’s Thunor Trust operated.

“The purchase of insurance companies under Thunor Trust provided a number of opportunities for regulators to ask questions about the prospective owners. We believe some of these questions should have been routine. Had regulators exercised a higher degree of scrutiny or professional skepticism during the purchases, the scam may have been detected earlier,” the AP quotes the report as saying.

In a letter to the National Association of Insurance Commissioners (NAIC) Rep. John Dingell (D-Michigan) reportedly called for immediate improvements in state regulations and enforcement of existing rules, and implied that the federal government would create its own regulatory mechanism, “if state regulators cannot do the job insurance consumers deserve and require.”

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