June 21, 1999
 
 
 

                   Vanished Money Manager
                   May Have Taken Millions

                   By DEBORAH LOHSE and MITCHELL PACELLE
                   Staff Reporters of THE WALL STREET JOURNAL

                   A cache of burning documents in a hastily abandoned mansion in
                   Greenwich, Conn. A reclusive money manager who has disappeared. At
                   least $218 million, and possibly billions, missing. Money wired to a Swiss
                   bank account. And several insurance companies insolvent and in
                   receivership.

                   It's all part of a bizarre saga that the Federal Bureau of Investigation and
                   insurance regulators are still trying to unravel.

                   But what they have discovered so far is worthy of a John Grisham novel.
                   According to the affidavit of an FBI agent filed in federal court in
                   Bridgeport, Conn., the latest chapter of this tangled tale began unfolding on
                   May 5 when a fire alarm sounded at a $3 million contemporary stone
                   home at 889 Lake Ave. in the ultraexclusive "back-country" section of
                   Greenwich, the home and office of Martin R. Frankel.

                   Astrological Charts

                   When firefighters arrived, the home was empty. Two fireplaces were
                   stuffed with burning documents, some of them shredded, a filing cabinet
                   was ablaze in the kitchen, and used fire extinguishers suggested a failed
                   effort to douse the blaze. Among the papers police later rescued from the
                   premises: a handwritten to-do list topped by the task "Launder money,"
                   followed by "get $ to Israel get it back in." Among Mr. Frankel's records,
                   the affidavit says, were personalized astrological charts designed to help
                   answer the following questions: "(1) 'Will I go to prison?' (2) 'Will Tom
                   turn me in?' (3) 'Should I leave?' (4) 'Should I wire money back from
                   overseas?' And (5) 'Will I be safe?' "

                                      It soon emerged that the mysterious 44-year-old
                                      occupant of this secluded home, who hasn't been
                                      seen since before the fire, may have played a
                                      central role in the possible disappearance of
                                      hundreds of millions from as many as eight
                                      insurance companies, which are now in
                                      receivership. Moreover, Saint Francis of Assisi
                                      Foundation, a Catholic charity set up last year by
                                      Mr. Frankel, is now wondering what happened
                                      to as much as $1.98 billion that Mr. Frankel is
                                      supposed to have wired to charity accounts he
                                      controlled during the past year.

                                      "I've been commissioner of insurance for 24
                                      years, and this is one of the biggest, in terms of
                   money, and weirdest things that I've ever dealt with," says George Dale,
                   the insurance commissioner of Mississippi. "This thing is a long way from
                   being over."

                   In an effort to solve the mystery, investigators have turned to a cast of
                   characters that includes Mr. Frankel's onetime bodyguard and security
                   chief, who claims in a lawsuit that Mr. Frankel misappropriated his name;
                   John A. Hackney, a Franklin, Tenn., businessman who ran the insurance
                   companies purchased with money that may have come from Mr. Frankel;
                   and several Catholic priests and lay leaders.

                   Missing Funds

                   Investigators have their hands full trying to separate fact from the web of
                   fiction Mr. Frankel appears to have woven. So far, they don't even have a
                   clear picture of how much is missing. At a minimum, a half dozen insurance
                   companies are missing at least $218 million, regulators say. A lawsuit filed
                   by a group of insurance companies puts the losses at a far higher $915
                   million. And then there's the $1.98 billion that is supposed to have moved
                   through the charity, although it has yet to be determined whether those
                   figures are accurate, and if so, where that money ended up.

                   The insurance companies involved, which span six states, are little known,
                   and none are publicly traded. At least three are subsidiaries of closely held
                   Franklin American Corp., based in Franklin, Tenn.

                   What's going on here? In his affidavit, FBI special agent Joseph Dooley
                   offered his own conclusion: "Since at least 1991 Martin R. Frankel,
                   operating under several different aliases and corporate entities ... devised
                   and executed a scheme to defraud by wire several insurance companies
                   across the country. Frankel, through fraudulent pretenses, representations
                   and promises, obtained control of the liquid assets and insurance-policy
                   premiums proceeds," ostensibly invested them through a "fraudulent"
                   brokerage firm, then "drained" the assets, transferring them to accounts he
                   controlled. Finally, said Mr. Dooley, Mr. Frankel "laundered these funds,
                   purchasing untraceable assets."

                   The affidavit describes a complicated series of transfers of more than $44
                   million in insurance premiums that wended through accounts at two U.S.
                   financial institutions before landing in a Swiss bank account.

                   More Than 80 Computers

                   The central character of this story has been an enigma to his neighbors
                   ever since he rented a house on a secluded cul-de-sac in the upscale
                   suburb of New York in the early 1990s. He told neighbors his name was
                   Mike King, that he was in the securities business, running money for a
                   Swiss bank, recalls one neighbor. He set up the headquarters office for his
                   Liberty National Securities in the 14-room stone contemporary on four
                   acres, installing fiber-optic cables and satellite receivers, and eventually
                   carted in more than 80 computers, according to neighbors and the
                   affidavit. Robert Guyer, who owns another Liberty National Securities that
                   is registered with the National Association of Securities Dealers, claims to
                   have known Mr. Frankel years ago, but says he and his firm have no
                   current relationship with Mr. Frankel.

                   The living room became Mr. Frankel's trading floor: a single easy chair
                   surrounded by video monitors and telephones, according to one person
                   who has seen the offices. There were televisions tuned to CNBC in every
                   room, including the bathroom, and keypads controlled access to interior
                   rooms, this person says. Bedrooms were converted to offices, save the
                   one Mr. Frankel used for sleeping, he adds.

                   Mr. Frankel had little contact with his neighbors, and seldom emerged
                   from his house. But other people, including many young women, came and
                   went at all hours, says Greenwich lawyer Philip Russell, who represents
                   several people in the neighborhood who were irritated by the activity. Two
                   years ago, police were summoned to a nearby house his company rented
                   after a 22-year-old woman was found hanging from an elevated deck. It
                   was ruled a suicide. The dead woman was "a quasi-employee and/or
                   girlfriend," a Greenwich police officer explained recently.

                   "At best, he was an unusual neighbor," says Mr. Russell. After renting for
                   several years, last July one of Mr. Frankel's companies paid $3 million for
                   the headquarters/home, then in January plunked down $2.6 million for
                   another home across the street. "He must have had $1 million of leased
                   cars in the driveway -- all of them Mercedes," says one neighbor.

                   Erecting a Guardhouse

                   This year, he began beefing up security, encircling the property with
                   six-foot fences and walls, and erecting a guardhouse. David Rosse, a
                   Peeksville, N.Y., security specialist, says Mr. Frankel agreed to pay him
                   $10,000 a month to provide personal security. Mr. Rosse, who is now
                   suing Mr. Frankel in Connecticut Superior Court in Stamford for alleged
                   nonpayment and use of his name for business transactions, says he spent
                   $100,000 adding security cameras, recorders, alarms, and lighting to the
                   property, according to the suit. Through his lawyer, Mr. Rosse declined to
                   comment.

                   Investigators have now begun to piece together a checkered past for Mr.
                   Frankel. He wasn't even supposed to be trading securities. His license was
                   revoked by the Securities and Exchange Commission in 1992, after an
                   administrative proceeding on complaints about the sale of limited
                   partnerships.

                   One year earlier, Mr. Frankel had been introduced by phone to Mr.
                   Hackney, a Tennessee-based consultant specializing in financial-institution
                   acquisitions, according to a person close to Mr. Hackney. Mr. Frankel,
                   who apparently was calling himself Eric Stevens, offered to help Mr.
                   Hackney buy insurance companies, this person says. In the fall of 1991,
                   Thunor Trust was started to do just that, starting with Franklin American.
                   Mr. Hackney, through his lawyer, declined to comment.

                   The trust was funded by three individuals, according to Tennessee
                   insurance commission records. But one of the three, Edward Krauss,
                   denies having contributed any money to, or having any part in, the trust. He
                   says his signature was forged on the Tennessee documents. Mr. Krauss,
                   an executive at the Greater Columbus Chamber of Commerce in Ohio, is a
                   friend of Mr. Frankel's brother Robert, and occasionally worked as a
                   personnel consultant for Martin Frankel in late 1998 and early 1999.

                   In any case, the trust succeeded in taking control of at least nine insurance
                   companies for about $71 million, most of them specializing in small
                   insurance policies designed to cover the funeral expenses of the insured. It
                   is unclear where the money to buy these companies came from.

                   Liberty's Low Commissions

                   Liberty National Securities, the securities firm Mr. Frankel ran, began
                   investing the assets of these insurers, which were pleased by Liberty's low
                   commissions and what they thought were market-beating returns, says the
                   person close to Mr. Hackney.

                   Meanwhile, last summer, Mr. Frankel set up the St. Francis of Assisi
                   charity, and allegedly using an alias, recruited trustees, including New York
                   lawyer Thomas Bolan, a former federal prosecutor. Mr. Frankel told the
                   trustees that he intended to give money to the charity, that his own Liberty
                   National would invest the money, and that the profits would be used for
                   charitable purposes, according to New York lawyer Maurice Nessen,
                   who represents Mr. Bolan.

                   After forming the organization, Mr. Frankel began wiring money, by a
                   circuitous route, to St. Francis of Assisi accounts at Liberty National, says
                   Mr. Nessen. A financial audit of the organization provided by Mr. Nessen,
                   which was conducted by the Franklin, Tenn., accounting firm of Leuty &
                   Heath PLLC, reported that the organization had assets of $1.98 billion on
                   March 31. Mr. Bolan believed Mr. Frankel "had loads of money at his
                   disposal, legitimate money," says Mr. Nessen. Calls to the accounting firm
                   and its principals weren't returned.

                   Mr. Frankel's complex financial dealings began to unravel last year.
                   Mississippi and Tennessee insurance regulators conducting routine exams
                   grew concerned about the concentration of assets that Thunor-owned
                   insurance companies had invested with obscure Liberty National, which
                   they were having trouble contacting.

                   Confusing Explanations

                   In a Mississippi exam earlier this year, Mr. Hackney gave what Mr. Dale,
                   the insurance commissioner, says were confusing accounts of whether the
                   St. Francis charity had become the new owner and beneficiary of Thunor.
                   That would be an unauthorized change of control, Mr. Dale notes.
                   Confused by the explanations, Mr. Dale put three Thunor-controlled
                   insurers under state supervision, and ordered Liberty National to return
                   about $200 million of the insurance companies' assets.

                   Mr. Frankel told Mr. Hackney that the assets would be available by May
                   10, but when Mr. Hackney tried calling Mr. Frankel on May 7 -- two
                   days after the fire -- he got no answer, according to a lawsuit filed by the
                   Thunor insurance companies in Nashville federal court. It seeks to block
                   Liberty National from taking proceeds from sales of securities it held on
                   their behalf.

                   In the days preceding the fire, people were seen shredding documents and
                   removing computers from Mr. Frankel's Greenwich home, according to
                   the FBI agent's affidavit. The day before the fire, a moving van was
                   spotted at the home, the affidavit said. Among the documents later
                   recovered were "research on extradition from various countries, including
                   Brazil, as well as the anonymous banking practices of at least one foreign
                   country," the affidavit adds.

                   In his wake, Mr. Frankel has left a mess.

                   Seven insurance companies, plus one that bought "reinsurance" from
                   Franklin, have been taken over by state regulators. At least four are
                   considered insolvent, and others may be ruled so at a later date. That
                   means any claims on thousands of policies will be paid out of state
                   guaranty funds, which are funded by collecting from other insurers in the
                   states where the policyholders live. Regulators say that, because small
                   insolvencies are relatively common, the debacle shouldn't result in
                   extraordinary expenses for insurers nationwide.

                   The condition of Mr. Frankel's charity is murkier. It is unclear how much
                   money Mr. Frankel passed through the foundation, where the money came
                   from, and where it went. "We don't know where the money is," says Mr.
                   Nessen.