Regulators Crack Down on Murky Life Insurance Plans

Published: Wed 23 Jun 2010

Perry Begay

The life-insurance racket treated Steven M. Brasner well for the better part of the last ten years-so well, in fact, that Brasner and his wife named their yachts after their profitable business. The couple's first, a 34-foot motor yacht, was entitled "Preferred Risk." The 50-foot vessel that replaced it was christened "STOLI on the Docks."

STOLI is an acronym that stands for stranger-originated life insurance, controversial plans that elderly people originate and then sell back to investors. The investors cover the premiums and then reap the proceeds when the original policyholder dies. Brasner, a sales agent, specialized in STOLI policies. Prior to the financial crisis, he matched aging retired people who needed cash with lucrative hedge funds hungry for unusual investments.

Times have changed, however. In April, Florida law enforcement arrested Brasner on 22 counts of alleged fraud, grand theft, and other crimes related to $78 million of life insurance policies that garnered him almost $2 million in commissions. Florida has accused him of lying to life insurers about the financial status of applicants and their purposes in purchasing the coverage. If convicted, Brasner, 44, may face decades of jail time.

Brasner has entered a not-guilty plea and will "zealously defend" himself against the allegations, reports Mark Eiglarsh, his lawyer. The sales agent "passionately maintains his innocence" and "eagerly awaits his opportunity" to argue his side in court, he explains. Brasner refused to comment.

In the meantime, the insurance agent is a defendant in a litany of civil suits filed by life insurers hoping to void most of the life insurance policies, and by investors who claim that they lost money by purchasing the policies that are now worthless. The legal turmoil has taken a monetary toll-in 2009, the Brasners gave up their yacht to a lender. The sales agent is also representing himself in a few of the civil suits, in which he maintains his innocence.

State-Wide Crackdown

Brasner's recent misfortunes are the result of a post-bubble attack by Florida authorities intended to prosecute the middlemen who served a vital role in creating stranger-originated life insurance policies. In chaos that shares some commonalities with the subprime-mortgage catastrophe, billions of dollars of STOLI plans were sold to elderly people from 2004-2008 with the aim of selling the plans to investors. The investors believed they had identified an opportunity in life insurance policies that seemed priced too low; certain funds collected hundreds of STOLI policies.