Fast talking and eccentric financier Martin Frankel may have been responsible for one of the strangest Ponzi schemes in recent history, but he was hardly the most intelligent fraudster; in fact, he wasn’t even a financier. How did this man, with his Woody Allen mannerisms, that failed out of college, and lived at his parents’ home well into his 30’s, convince hoards of wealthy investors to trust him with their investment decisions?
Frankel’s story begins in 1986. Leaving the University of Toledo after just two years, Frankel moved back to his parent’s home and manages to land a job with John Schulte, a small brokerage firm associated with a much larger firm known as Dominick & Dominick. Frankel was known to frequently wax on about his “system” and his special knowledge of hot investments. In spite of never proving this system, Frankel believed that company policies did not apply to him. After frequent warnings about failure to adhere to the dress code policy, ordering equipment and signing as a representative of Dominick & Dominick, as well as his inability to perform trades and incompetence regarding the job, Schulte was forced to give Frankel the boot.
In spite of Frankel’s lackluster performance, he still managed to hoodwink investor Ted Bitter. Operating the Frankel Fund from his bedroom in his parents’ home, crammed with rented equipment he could hardly afford, Frankel convinced a large Chicago firm to act as their Toledo representative. As luck would have it, businessman Douglass Maxwell had heard all the exaggerated claims about Frankel’s firm and agreed to become business partners.
Moving to Florida to be closer to wealthy contacts Frankel met through Maxwell, more than a million dollars were squandered away through bad trades and expenses. Growing suspicious, Ted Bitters and a second client – John Herlihy, took their concerns to the police. Frankel was able to avoid a third complaint by paying off a client Maxwell had brought in through funds from both Herlihy and Bitters’ accounts. Frankel was banned from securities by the SEC in 1991, but even that could not stop him.
Setting up a new company named Thunor Trust, Frankel’s new goal was to acquire struggling insurance companies. His idea was since insurance companies keep large reserves on hand, he could use those reserves at his leisure without attracting attention. With the help of businessman John Hackney, Frankel planned to use the reserves to purchase more struggling insurance companies, allowing him to access as much as he wanted in the other reserves, and having the ability to easily transfer funds in order to avoid detection.
Frankel was able to successfully pull off this scheme for some time, but greed began to get the best of him. Convinced that it was necessary to create a charity endorsed by the Catholic Church for the purpose of laundering money, Frankel did what he did best – using the name David Rosse, he convinced several “big wigs” with involvement in Catholic charities that he was a wealthy Jewish genius looking to invest upwards of $50million in the church and related charities. After proposing the deal to the Vatican, with the help of his new friends, Frankel was able to form the St. Francis of Assisi Foundation, allowing Frankel the means to easily launder money he extorted from his insurance companies without too many questions.
Using his wealth to purchase a new home in the upscale town of Greenwich, Connecticut, Frankel had a number of young women, servants, and other staff, along with former employer John Schulte’s wife and children living with him. Neighbors found Frankel odd and became convinced he was running a brothel. Suspicious neighbors would be the least of Frankel’s concerns.
As Frankel was being waited on hand and foot by his many servants, the Mississippi insurance commissioner began asking questions about where one of Frankel’s companies was wiring money to and the St. Francis of Assisi Foundation. All of Frankel’s companies were seized by federal regulators, causing an already frazzled Frankel to come completely unhinged.
After frantically shredding documents at his home and fleeing to Europe on a private plane, investigators eventually caught up with Frankel in Germany. Convicted in 2000 for falsifying passports and other documents, along with smuggling millions of dollars worth of diamonds into the country, Frankel was sentenced to 3 years in a German prison and fined $1.6 million for the smuggling charge. Meanwhile in Connecticut, the grand jury was building their case for the $200million Frankel had stolen from his various insurance companies.
In 2002, Frankel was returned to the US and is facing a maximum of 150 years in prison with a potential for a lighter sentence if he is able to recover some of the $208million he owes. Also indicted in connection with Frankel’s shady business practices were Monsignor Colagiovanni – The priest who had helped Frankel set up the St. Francis of Assisi Fund, girlfriend Sonia Howe for falsifying financial reports and other knowledge she possessed about Frankel’s scams, and five other major cohorts.
Even though Frankel wasn’t a very intelligent man, his scam went on for over a decade without anyone taking action against him. Negligence on behalf the insurance commissioners were brought to light during the trial proceedings. Although Frankel’s actions should have raised red flags if responsible parties had been doing their jobs, suspicious transactions were often overlooked because there was no specific law that warranted a closer look at what Frankel was doing. Had the State regulators been watching Frankel’s transactions more closely perhaps he wouldn’t have managed to pull off his fraud game for as long as he did.