WASHINGTON - Jailed financier Martin Frankel and an associate, John A. Hackney, were charged by the Securities and Exchange Commission yesterday with securities fraud in looting the assets of 10 insurance companies.
Hackney pleaded guilty to a racketeering conspiracy charge and to money laundering for his involvement in the alleged $200 million fraud against several Southeastern insurance companies, the U.S. attorney's office in Connecticut said.
In a filing in U.S. District Court in Bridgeport, Conn., the SEC said Frankel "masterminded a massive fraud to loot the assets of insurance companies in Tennessee, Alabama, Oklahoma, Mississippi, Missouri and Arkansas."
Hackney, the chief executive officer of Franklin American Corp., a public holding company, participated in Frankel's fraud and deliberately hid Frankel's control of Franklin from the SEC, state insurance regulators, FAC employees and the public, the SEC said.
By taking over Franklin, Frankel was able to use it to acquire insurance companies, the SEC said. He then claimed to be investing their assets and those of Franklin in government securities, the agency said. "Instead, Frankel fabricated trades" and reported them on phony account statements, the SEC said, adding that he used a "significant portion of the insurance companies' funds for his personal living expenses, misappropriating millions of dollars."
Hackney hid Frankel's control of Franklin and his involvement with the insurance companies by filing inaccurate annual and quarterly reports with the SEC, the agency said. The reports also misrepresented Franklin's financial condition, the agency said.
These activities took place from 1990 to 1999, the SEC said. Frankel had been enjoined in 1992 from committing securities fraud and barred from the securities industry, the commission said.
For helping Frankel, Hackney received more than $8 million in cash and other compensation from Frankel, the SEC said.
Attorneys for Frankel and Hackney weren't available for comment.
The SEC has also charged Robert Guyer, a Dundee, Mich., registered broker-dealer with aiding the scheme. Guyer was president of Liberty National Securities, where Frankel purportedly set up investment accounts for the insurance companies, the agency said.
U.S. prosecutors said Hackney admitted receiving more than $7.3 million from Frankel in cash or personal expenses. He also said he got $515,000 from Frankel to buy his Franklin, Tenn., home, and $375,630 to buy a second home in Guntersville, Ala., the U.S. attorney's office said.
Hackney's Tennessee home was purchased with funds transferred from Frankel's account in Switzerland to an off-shore corporation, the U.S. attorney's office said. As part of his plea agreement, Hackney agreed to forfeit his Tennessee home, the office said.
Delcie Thibault, law enforcement coordinator for the U.S. attorney's office in Connecticut had no comment as to whether Hackney has agreed to cooperate with the United States in testifying against Frankel.
When he is sentenced, Hackney faces a maximum penalty of 20 years in prison and a $250,000 fine on the racketeering charge. The money-laundering offense carries a maximum penalty of 20 years in prison and a $500,000 fine, prosecutors said.