The many faces of fraud.

Insurance agent or broker fraud can take many forms. Here are some recent examples:

* A Burtonsville, Md., insurance agent and a Takoma Park, Md., woman were among 31 people indicted in June 2004 by federal authorities in Maryland in connection with a drug and money-laundering scheme. The two, Richard Gunn and Paulette "Auntie" Martin, were accused of laundering drug profits by taking out at least 17 life insurance policies on drug users and others without their knowledge during a 10-year period. Several news organizations quoted law-enforcement authorities as saying all 17 were dead, and some had died suddenly or violently.

* In May 2004, New Jersey insurance broker Philip A. McKeaney was ordered to pay more than $1 million in restitution and sentenced to seven years in state prison for defrauding nine corporations out of more than $1.6 million. Some months earlier, he pleaded guilty to three counts of theft by failure to transfer property received, and two counts of misapplication of entrusted property. As head of a third-party administrator, McKeaney managed self-insured companies' health benefits by using funds provided by clients to pay individual health-care claims and procure reinsurance coverage for catastrophic claims.

He was charged with stealing the $1.6-plus million from his clients and diverting tax payments and employee-funded unemployment and disability contributions due the state to his personal accounts. Authorities said he illegally withheld $28,722 in personal income tax payments and unemployment and disability insurance contributions from New Jersey. His clients included a New Jersey hospital and a Delaware health-care system. It was one of the largest insurance fraud schemes uncovered in southern New Jersey.

* Steven M. Usarzewicz, a former insurance agent affiliated with Guardian Life Insurance Company of America, pleaded guilty in June 2000 to stealing $141,375 from a client's trust fund and using it for personal expenses. The fund was a legal trust not associated with the carrier.

Usarzewicz admitted that as trustee of a fund set up to benefit the client's children, he took the money over nearly four years. Some of the money needed to make up the fund's deficit was contributed by Guardian Life and some was collected from Usarzewicz's errors and omissions insurance. He raced a sentence of from three to live years in prison.

* Elexson Ellias Jr., a Louisiana insurance agent, was arrested in August 2004 and issued a cease-and-desist order and summary suspension of his license for allegedly obtaining loans from customers' life insurance policies by forging their names on loan applications. He did so to obtain the cash loan value of the policies, said the state Department of Insurance in Louisiana. The cumulative monetary value of the fraudulent loans was about $11,800, the department said.

* Montana state regulators accused Thomas O'Neill, a broker with investment firm US Bancorp Piper Jaffray, of making more than 6,000 unauthorized trades for mostly elderly customers from 1997 to early 2001, reported the North American Securities Administrators Association. Regulators said some trades were made for a customer in a coma, and again after he died. O'Neill allegedly generated commissions for himself and the firm through the illegal trades "that transformed mostly conservative retirement investments into risky portfolios," NASAA said. The investment firm paid $2.6 million to settle the complaint, the association said.

* Arizona securities regulators obtained a $4.3 million judgment against a Scottsdale company and two insurance agents in 2003 for fraudulently selling charitable gift annuities to mostly senior investors who were told their money was going into secure accounts, NASAA said. But the money was put into high-risk speculative investments, and the agents took $1.3 million in commissions, the association said.

* In May 2000, the California insurance department charged nine people with conspiracy in a complicated viatical insurance fraud scheme intended to defraud investors and insurers. Viatical providers and brokers buy life insurance policies at a discount from face value, usually from the terminally ill, then resell the policies to investors who hope to collect on them when the insured dies. By selling a policy for a portion of its face value, the policyholder can get quick cash up front.

Two of the nine, Lonnie Lee Harwell and Penni Alexander-Harwell, were licensed insurance agents charged with spearheading a "cleansheeting" scam that led insurance companies to issue more than $11.6 million in life insurance policies to people with terminal illnesses. The department said the Harwells helped dying people acquire multiple fraudulent life insurance policies through misrepresentation. The policies would then be sold to investors who were unaware of the misrepresentation.

Actions Against Producers

In 2002, 3,914 fines totaling $7.7 million were
levied against insurance agents and brokers.
These five states reported the greatest number of
fines--for fraud as well as other misdeeds--against
producers that year.

             Number         Amount       License
State        of Fines     of Fines   Revocations

Indiana      649          $178,921            15
Georgia      642          $101,380             8
Alabama      428           $85,220            16
Michigan     337          $368,919            22
New Jersey   267        $1,355,412            14

Source: National Association of Insurance Commissioners