Transcript

473:

Loopholes
Transcript

Originally aired 08.24.2012

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Full audio: http://tal.fm/473

Prologue.

Ira Glass

Well, it's just like they say in Us Weekly, people in the 18th century, they're just like us. At least they are when they're not in situations like the one I'm about to describe to you. It's 1761, Austria, cue the Mozart music, which, by an act of Congress in 1974, is required in any Public Radio story like this. Mozart, please.

[MUSIC PLAYING]

Ava Litzelfelnerin gets married. She's 25, moves from her parents' farm to her husband's farm 16 miles away, which back then seemed really, really far away.

Kathy Stuart

She feels like she's in a foreign country when she's moved these 16 miles to the new village. And she says things like, oh, I don't know what the local customs are here.

Ira Glass

That's Kathy Stuart, a professor of history at the University of California Davis. She says that from hundreds of pages of archived criminal testimony, we know that this was an arranged marriage, that Ava met her husband days before the wedding, and that Ava's new mother-in-law dominated the household, wouldn't even let Ava give gifts to the neighbors when she moved in. The mother-in-law gave the field hands smaller portions of food than Ava thought was right, and she wouldn't let Ava change it or take charge. Ava tells people how unhappy she is in this new life far from the life she'd known.

Kathy Stuart

She is constantly articulating to her husband, her brother, her mother that she wants to leave this world, and she can find no happiness in this world. And the only response she gets is go home and pray and work.

Ira Glass

So she decides to end her life, but there's a problem. At the time, suicide was considered a worse sin than murder. Kathy Stuart says the logic was, if you committed a murder, you could confess your sin, and if you were truly repentant, you could get yourself into Heaven. Obviously, if you kill yourself, you don't get that chance, and you are doomed to eternal damnation. And Ava did not want to go to Hell, but she thought of a loophole-- a morbid, little loophole.

Kathy Stuart

She thought, OK, wait a minute. What if I commit suicide in a way that is really slow and secret. And I can get myself to a priest on time to confess before I die, and then nobody need know that I committed suicide, and I'll get to Heaven anyway. So what she does is, she goes to a nearby town, and she goes from store to store trying to buy arsenic.

Ira Glass

She testifies later this turns out to be really, really hard. Arsenic is a controlled substance. Nobody wants to sell it to her. Finally, she makes up a story about working for a farmer who has a rodent problem, which works.

Kathy Stuart

And then she goes home and she takes the arsenic. But she takes apparently just a little bit of arsenic, the way she describes it, as much as you could get on the point of a butter knife.

Ira Glass

It's delicate, right? She wants to take enough arsenic that it'll kill her, but not so much that it'll kill her quickly. She needs time to get to a priest first to confess the sin.

Kathy Stuart

So she takes this little bit of arsenic. But apparently it was enough to make her violently ill, and for a week, every time she ate, she vomited. But it wasn't enough to make her think that she was now going to die.

Ira Glass

So she never goes to the priest. Figuring out the proper dosage, she testifies later, is just a vexing problem that she doesn't know how to solve. And she gives up that plan, which brings her to a much more disturbing plan. She decides to do something that, to us, to our modern sensibility, is so much worse than killing yourself. From our point of view, she decides to do one of the worst things a person could possibly do.

Kathy Stuart

She decides, I'm going to murder a child.

Ira Glass

That's right. She's going to murder a child to help herself get into Heaven. And incredibly, Kathy Stuart says this was a common strategy around that time for people who wanted to kill themselves. She came across a case like this and then went looking for others like it. And now she has found around 300, most of them women.

Kathy Stuart

These people don't want to go to Hell. So the option that they choose is to commit a capital crime. Immediately upon committing the crime, they run to the court. They confess what they have done, and they essentially demand their own execution.

Ira Glass

So they demand execution knowing that before they go to the gallows, they will have a chance to confess. And if they're truly repentant, they'll go to Heaven. And why kill a child?

Kathy Stuart

They kill a child because the child is seen as being in a state of innocence. So you might possibly be doing the child a favor, because the child will also go to Heaven. You will go to Heaven. It's kind of a win-win situation. There's a happy ending for all.

Ira Glass

Yes, the classic happy ending. An innocent child gets an untimely death. Ava has to try this twice before she succeeds. The first time, she pushes a boy, who is described as being tall as a chair, into a river. But then someone spots them, and it seems like that person might rescue the boy. And so she decides, well, she should just rescue the boy herself. And then the boy ends up running away, and it doesn't work out.

The second time, she wanders to a nearby village called Traun, which has a little waterfall. She walks by a house, notices some baby clothes on a clothesline. Ava steals the baby, who is this couple's only child. The woman's 37. The man is 58. Ava throws the baby into the river and then turns herself in. Later, interestingly, when she's interrogated, she never actually seems too regretful about what she has done to this other family.

Kathy Stuart

Just before her ultimate condemnation, in the last interrogation the interrogator asks her, is there anything else you want to say? Is there any regret you want to express? And again, she expresses regret for the distress and dishonor that she has caused her husband and her family. But she never even mentions the child or the child's parents. And I thought that was quite striking.

Ira Glass

Well, she's not sorry.

Kathy Stuart

No, she's not sorry, one might say.

Ira Glass

So she's not going to Heaven, right? She's not sorry for the murder. This whole plan of hers is not going to work.

Kathy Stuart

Well, the pastor will say to the person being executed, do you think God can be fooled in this manner? You know that by doing this, you actually have committed suicide and so forth. And so the pastors really do address that theological problem, that this is a loophole. You're trying to cheat God. But because they have enough time, the condemned criminal can say, oh, yes, I was trying to cheat God. I was trying to commit suicide, and I repent. So confession takes care of it all.

Ira Glass

It doesn't seem fair.

Kathy Stuart

No, it really doesn't.

Ira Glass

Kathy Stuart says these kinds of suicides, suicides by proxy, she calls them, started in the mid 1600s. By 1700, officials in European cities were starting to notice this new trend of people murdering children so that they would get executed. And the officials tried to adjust the laws to stop it. In 1702, officials in Nuremberg made the execution more painful and shameful for these cases. It didn't work.

In 1767, they finally do the only logical thing to close this loophole. People are killing children because they want to get the death penalty. OK, they remove the death penalty for this kind of case. That didn't work either.

Kathy Stuart

Cases keep happening until the early decades of the 19th century. So it really seems like people didn't get the memo. It probably dissuaded some people, but people keep doing it.

Ira Glass

Today on our show, we have a story about this cat-and-mouse game where rules are set, and someone tries to bend around the rules to get what they want.

As any parent knows, starting pretty much as soon as a child is able to understand the fact that rules exist-- you know, don't touch the stove; don't put that in your nose-- they start to test the boundaries of the rule, to poke at it, to look for loopholes.

Today we have the story of somebody who takes pleasure in doing just that. He takes pleasure in the ingenuity of it, of finding a loophole that nobody else has noticed, and exploiting it as long as he can until the authorities notice him.

From WBEZ Chicago, it's This American Life, distributed by Public Radio International. Stay with us.

Act One. Death Takes a Policy.

Ira Glass

Act One, Death Takes a Policy.

Joseph Caramadre is a wealthy philanthropist and a devout Catholic. In his huge house in the Providence suburbs, he has a near-life-size statue of Saint Joseph displayed in its own alcove in the living room. He's given millions of dollars to charities, especially the Catholic Church.

In 2009, the local United Way gave him one of its highest individual honors-- the Tocqueville Society Philanthropy Award-- for his work on behalf of more than 40 different charities. Joseph Caramadre is also, depending on who you talk to, either a criminal mastermind, or just a regular, law-abiding guy, who managed to take advantage of loopholes to turn the tables on some of the largest corporations in the country and beat them at their own game.

Jake Bernstein from ProPublica teams up with Alex Blumberg from our own Planet Money team to tell the story.

Jake Bernstein

Before the criminal indictment, before the lawsuits, before the exposes on the local news, Joseph Caramadre had a prosperous business doing estate planning. He helped rich people prepare for their deaths, everything from taxes to life insurance.

Alex Blumberg

To give you a sense of what kind of guy he is, what makes him so good at this job, consider this story. He was at a local office superstore, and they were selling calendars with coupons on each page. He saw one of these coupon to that said $25 off any piece of office furniture. He read the fine print and realized the lawyers who wrote the language in that coupon had forgotten a key clause.

Joseph Caramadre

I noticed that mistake there. It was normal for me to notice it. I'm kind of hard wired for this.

Alex Blumberg

Wait. What was the mistake?

Joseph Caramadre

The mistake was that they meant $25 off of any piece of furniture over $200. They forgot the over $200 part. So all the coupons were issued $25 off of any piece of furniture.

Alex Blumberg

And there was lots of furniture that was less than $25?

Joseph Caramadre

It was even worse than that. There was stuff $40 on sale for $25.

Jakebernstein

Caramadre bought all the calendars he could. He bought so many of them, he says, they gave him a discount. And when that month for that $25 off coupon rolled around, he showed up at the store, and bought every piece of furniture under $25 he could find.

Joseph Caramadre

And they rang it up. All right, it's $1200. And I just pull out a stack of coupons and say, all right, we're even. And the face on the managers-- the expression on the poor manager's face was such that the poor guy said I'm going to lose my job. I said it's not your fault that Legal doesn't know what the hell they're doing.

Alex Blumberg

Who does this? Think of the effort involved. He had to read through 12 months of the fine print, buy all those calendars, remember the scheme, and come back several months later to claim his prize. And for what? $1,200 of cheap office furniture that he didn't even need. He actually had to borrow a truck from a friend to take it all home, where he says he stored some of it in his garage and gave some to friends, family, and charity.

Jake Bernstein

Joseph Caramadre has a compulsion for loopholes, for seeing the angle in a deal and exploiting it. In fact, when he discovers schemes like this, he calls them his creations. He actually numbers them. There have been 19 of them in his lifetime, he says. The office furniture one was number four. And it is number 18 we're talking about today, the one that first landed him in trouble.

Alex Blumberg

The seeds of number 18 came in the mid 1990s, in a place most of us would probably consider more likely to put us to sleep than spark an idea.

Joseph Caramadre

One of the insurance companies was giving a seminar to agents, which I am a life insurance agent, where they were espousing the benefits of their variable annuities.

Alex Blumberg

So Jake.

Jake Bernstein

Alex.

Alex Blumberg

This is the part of the story where we have to explain what a variable annuity is.

Jake Bernstein

Yeah, but don't worry. It's not that complex. The variable annuity was a product that was just becoming popular around the time Joe went to the seminar. And though they were sold by life insurance companies, they were very different from a traditional life insurance policy.

Alex Blumberg

A life insurance policy, you pay a little bit of money each year and, if you die, your beneficiaries, your spouse, your kids, will get a big payout.

Jake Bernstein

Variable annuities are more like an investment. You have, say, a million dollars, and you purchase an annuity, which is then invested in a variety of different funds that you select-- mutual funds, stocks, bonds. The insurance companies give you an array of choices, and you tell them which funds get the money.

Alex Blumberg

This is the variable part of the equation. Now, you might be wondering, why not just put the money in a mutual fund yourself? Why go through the insurance company at all? Well, one of the main reasons, the insurance company has offered something called a death benefit guarantee.

Jake Bernstein

With the death benefit guarantee, say you invest a million dollars, but the market crashes, and so does your investment. If you should die before the investment recovers, your beneficiary gets the original million, even if the account is worth half of that. You get all the upside without the downside.

Alex Blumberg

All upside, no downside. This is the Holy Grail for any investor. Most investment managers will tell you it's impossible. You can't get reward without risk. Yet here it was, sitting before Caramadre, the proverbial free lunch-- with one very big catch.

Joseph Caramadre

That's really not a free lunch. I have to die.

Jake Bernstein

To most of us, that having to die part, that would be a deal breaker, a sign to walk away. But to Caramadre, he could tell there was a creation in here somewhere, he just needed to find the loophole.

Joseph Caramadre

All we need to do is replace the necessity of the investor having to die with someone else dying. So if we could transfer and get a substitute life, we've effectively accomplished the investor not needing to die.

Alex Blumberg

Joe started reading through prospectuses, the 100-page documents filled with legalese that explain the rules of each annuity plan. Lots of companies offered these annuities, Transamerica-- ING, MetLife, Nationwide. And it turns out, the way these variable annuity contracts were written, there was a loophole.

Every annuity has three participants. There's the investor. That's the person who's putting up the million dollars, say. There's the beneficiary, the person who gets the money if the death benefit is triggered. And then there's a third party called an annuitant, or what's known as a measuring life.

Jake Bernstein

And this third category, that annuitant person, that's where the loophole was found. The way the insurance companies intended it to work, the way it worked most of the time, was that the investor and the annuitant were the same person.

For example, I, Jake Bernstein, put up a million dollars to purchase an annuity. And if I, Jake Bernstein, die, then the death benefit gets triggered. I'm the investor. I'm also the annuitant. The beneficiary would usually be a family member.

Alex Blumberg

But Caramadre discovered legally you could set it up a different way. There was no requirement in the contracts that the annuitant be the investor. In fact, there was no requirement that the annuitant have any relationship to the investor at all. So in theory, I, Alex Blumberg, could put up a million dollars, but I could find someone else, my ailing grandmother or a perfect stranger, to be the annuitant, to be the person whose demise triggers the death benefit.

Joseph Caramadre

If you can get a short life expectancy, you will be able to have your cake and eat it. You'll be able to invest any way you want to in these mutual funds and know it's like going to the horses. When you leave the horse track, if you won, you keep the winnings. If you lose, they give you your money back.

Jake Bernstein

Now, there are laws against using insurance to profit from the deaths of strangers. You don't want people taking out an insurance contract on the neighbor down the street and then killing them. But according to a Rhode Island federal court, an annuity is fundamentally different than life insurance. So those laws about insuring strangers, they don't apply.

Alex Blumberg

Which meant Caramadre's creation was almost complete. But before he brought it to his clients, he needed to test it, so he decided to buy one himself. He started small, an annuity for just $10,000. He was the investor. His wife Paula was the beneficiary. All he needed was an annuitant who might not be around for long.

Joseph Caramadre

In this case, it was a friend of the family I knew that our family in church was praying for because they had cancer, and I was helping to straighten out the estate of the family. So I happened to know the person and just asked them, can I use them as a measuring life.

Alex Blumberg

Was that-- were you nervous to first have that conversation?

Joseph Caramadre

Yeah, I would say I was a little bit nervous, because we're talking about someone dying, and no one wants to talk about death. I think a lot of my success in the life insurance industry has been because I always treat death as a part of life, and it's very easy for me to talk about it. I'm around death all the time. Estate planning is all about death planning.

So, for me, it was-- basically, I guess I might have been the first one to ever ask anyone, can we use their name and their health status for the benefit of others. Yes, I was a little nervous, but then, on the other hand, if the person didn't want to do it, they didn't have to do it. This was an opportunity for me to test something. And if it worked, then I could bring it into more of a multiple use.

Jake Bernstein

And it was also an opportunity for the annuitant, who was very sick and maybe struggling financially, to get some money. Caramadre says he initially paid this family friend around $500 for his signature and permission to use his name, date of birth, and social security number on the annuity form.

Alex Blumberg

Now, a lot of people might find this gross, taking a person's most vulnerable, emotional moment and turning it into an opportunity for financial gain. But on the other hand, this isn't trying to upsell a grieving family on a super deluxe casket. Sure, Caramadre and his clients were going to benefit. But Caramadre was giving this man and his family money, not taking money from them.

Jake Bernstein

On the application, the insurance companies only asked one question that touched on what Caramadre was planning to do. That single question? What is the relationship between the investor and the annuitant.

Joseph Caramadre

I put N-O-N-E, none. No relationship.

Alex Blumberg

But they don't ask how healthy is he? They don't say, is he in a hospital? Is he in a hospice? None of that stuff.

Joseph Caramadre

No, not at all.

Alex Blumberg

Within a few months, Caramadre's first annuitant died. Caramadre paid his respects to this family and submitted the death claim. His account had lost money. The original $10,000 investment was down to about $9,000. But the insurance company paid him his original investment plus interest, no questions asked. And I emphasize, no questions.

Jake Bernstein

Did they say anything to you when you put in the claim after only four months, or three months, or whatever it was?

Joseph Caramadre

No. And let me make it a little bit more interesting. Right after that, we submitted four applications to the same company with four different investor owners using the same measuring life.

Jake Bernstein

So they found one dying person and filled out four different applications with four different investors all using the same guy as the annuitant. When that person died?

Joseph Caramadre

I actually sent in one piece of paper saying this person died, pay these four owners. And they said nothing. So they had--

Jake Bernstein

And they paid it?

Joseph Caramadre

Yeah, they paid it and processed it.

Jake Bernstein

The insurance companies paid and processed it because the insurance companies made a lot of money. Remember the way this usually works. You put in your million dollars, and the life insurance company can collect upwards of 4% of that money in fees every year, potentially for decades. The way the insurance company saw it, these annuities were money makers. They didn't need to ask that many questions.

Alex Blumberg

For Caramadre, though, it meant creation number 18 was fully operational. He'd found the loophole that made the free lunch possible.

Joseph Caramadre

OK, so now I have a creation on hand that has been tested at least preliminarily with a little bit of money. It has been tested that the company doesn't seem to care or want to care about underwriting, health questions, relationship, or even losses or gains. So I now start going to clients that are near and dear to me and tell them look, I think I have something special here.

Carl Ferreira

My name's Carl Ferreira. I'm a general dentist in Fall River, Massachusetts.

Jake Bernstein

Carl Ferreira met Joe Caramadre through his accountant, who told him about this smart attorney in Cranston, Rhode Island, who had a great investment opportunity. Carl met with Joe, learned the details of creation number 18, and said sign me up.

Carl Ferreira

For me, it was an ideal position to put some of my pension money in, where there would be growth and guaranteed principal protection, and I would protect both myself and my employees from the fluctuations of the market.

Alex Blumberg

Your pension money meaning the pension money that you're paying for your employees?

Carl Ferreira

Correct. And I also put some personal money in it as well.

Alex Blumberg

For Ferreira, there was one other attractive feature to Caramadre's creation.

Carl Ferreira

One of the things I was thinking, and I thought, well, isn't this something? How many times had we dealt with insurance companies and been denied claims, whether it's on your homeowner's, or your medical insurance, or your dental insurance, and they refer you to some policy in fine print. And you say to yourself, you need a lawyer to read this.

And I said isn't this great? Finally, there's a lawyer that read this and is now going to hoist them on their own petard. So we have this Italian lawyer from the hill that went to Suffolk law school at night and beat these guys from Harvard and Yale and Princeton at their own game.

Jake Bernstein

Ferreira says he never had any qualms about benefiting from someone else's death.

Carl Ferreira

That wasn't really an issue for me. And I was so not squeamish about it that I brought that forth to my father when he was elderly. And he couldn't get the pen fast enough to sign.

Jake Bernstein

Oh, so you actually said, hey, dad, this guy Joe Caramadre, he could give you a couple thousand dollars if you sign your signature?

Carl Ferreira

He just signed it without the money. It was just, hey, Pop, I got this opportunity here. Do you want to sign this? And as I said, he couldn't get the pen fast enough. If there was going to be something that was going to be an advantage to his children, he was going to do that, dead or alive, or alive or dead, we would say.

Jake Bernstein

Throughout the '90s and early 2000s, word of Caramadre's creation spread amongst his clients and his acquaintances. It was never a big part of his overall business, he says. He puts it less than 5% of what he made. But among a certain type of person, getting in on creation number 18 became something like a trophy investment, something to brag about.

Joseph Caramadre

If there's a couple of people who are captains of industry at a country club, they're always boasting that their investment adviser got them this, and their car is the best, and all this. Their doctor's the best. So it actually got to the point where, if I wanted to, I could have a waiting list of people to beg me to take a million dollars. People wanted a piece of this, if they could hear about it, and if I would allow them in the game, if you will.

Alex Blumberg

Caramadre made money on this scheme in a variety of ways. Sometimes, he simply collected a fee. The insurance companies had these annuities they were trying to sell, and they paid the people who helped sell them a small percentage. Caramadre would take a cut of that percentage. On a few occasions, he says, he split some of the profit with the client.

He would say to one of these captains of industry, I have this great opportunity for you. Give me a cut of whatever your investment makes. And sometimes, he would invest his own money in an annuity. Caramadre's lawyers have told him not to say exactly how much he made off of this scheme, but it was likely in the millions of dollars. Regardless, as he did more and more of these deals, he needed more and more people who were close to death.

Joseph Caramadre

I started asking doctors, nursing homes, hospices, organizations, funeral homes, social workers if they knew of anyone who is terminally ill and needed money. If they refer them to me, and they want to participate in this program, I could find their money.

Bailiff

Raise your hand, please. Do you swear the testimony you're about to give will be the truth, the whole truth, nothing but the truth, so help you God?

Charles Buckman

I do.

Bailiff

Would you state your name, please?

Charles Buckman

Charles Buckman.

Bailiff

Please spell your last name.

Charles Buckman

B-U-C-K-M-A-N.

Alex Blumberg

Charles Buckman was one of several dozen dying people who filled out paperwork for Caramadre's deals. Some of these were also used in a slightly different scheme, creation number 19, which involved bonds, but was a close cousin of the variable annuity program.

Jake Bernstein

Most of the participants in these schemes have died by now. We found two annuitants who are still alive, but they declined to talk to us. But we do have video testimony of several of these annuitants taken before they died. In this video, Charles Buckman has an oxygen tube going into his nose. He suffers from a chronic lung condition. He's also hard of hearing. He says he first got involved with creation number 18 in 2008. It started with his wife.

Charles Buckman

It started, my wife, she had cancer, and she was critical with cancer. And we had a visiting nurse who came two or three days a week, and she mentioned to my wife, she showed us a flyer and wanted to know if we ever got our $2,000. My wife said, what are you talking about? We had no idea. So she gave us the flyer. She said please call this number. So I did.

Jake Bernstein

By 2008 when Buckman got involved, Caramadre had taken out an ad in a local Catholic newspaper which said-- Terminal illness? $2000. And then all in capital letters-- IN CASH, immediately available.

Alex Blumberg

And the way it worked, everyone who answered the ad and could prove they had a terminal illness got a check for $2,000, whether they participated in Caramadre's program or not. If they decided to sign the documents and serve as a measuring life, there was more money available, usually between $3,000 and $10,000.

Jake Bernstein

Caramadre had a young employee right out of college named Raymour Radhakrishnan, who was signing up most of the annuitants, including Charles Buckman.

Charles Buckman

He stopped in, and he visited with us. Just a friendly visit, like an old friend, more or less.

Lawyer

OK. Did he talk about--

Charles Buckman

And he said he had a check for us.

Lawyer

OK.

Charles Buckman

And he asked, who do I make it out to? And he was in a rush. He had other places he had to go that day, if I can remember correctly.

Lawyer

OK.

Charles Buckman

He said Mr. Buckman, I'd like to stay longer, but I have other appointments. He says, if you don't mind, I'll call you at a later date. And I'd like to set up another meeting with you and come back to visit with you and your wife.

Lawyer

OK.

Charles Buckman

And I said fine. I said anybody that comes to my house and gives me $2,000 is welcome anytime.

Lawyer

A welcome visitor?

Charles Buckman

Yep.

Alex Blumberg

Raymour came back a few days later with documents to sign. Mr. Buckman says Raymour read him the documents and explained that there's a group of people making an investment, and these people could make money if someone dies. He says he knew that he and his wife wouldn't get any of that money. Their only payouts were the checks they would collect for signing these documents.

Jake Bernstein

Buckman and his wife ended up signing papers on nine transactions. Caramadre says he paid the couple a total of $12,000. To Buckman, it was a great deal. He said so to Raymour.

Charles Buckman

What I told Raymour was, my wife-- I can't thank him enough. And he can tell you, I could not thank him enough, him and his boss, for supplying my wife with the best days of her life for the couple months before she passed away. And to this day, I'll be forever grateful.

Jake Bernstein

Buckman said he couldn't care less how much Caramadre and others were getting.

Charles Buckman

No matter what they had, I could care less how much they got. I know that my wife had the best time of her life because of what they did for her. And I'll never be thankful enough.

Alex Blumberg

We heard this from other people as well. We spoke to a woman-- she didn't want her name to be used-- whose mom had lung disease and signed forms with Caramadre multiple times. Her mom made around $20,000, according to Caramadre.

Female Speaker

What he gave my mom-- at the time, she had been sickly, and financially, as most people in her age group, things like prescriptions were becoming a stretch to afford. She couldn't buy Christmas presents for her grandchildren and her great grandchildren. And there were certain things that she needed, whether it be hair color or to go to Wright's Chicken Farm with the elderly and whatnot. She didn't have her own money for that, so she relied on us for that, and that bothered her. [SOFT CRYING]

Alex Blumberg

I'm sorry.

Female Speaker

I did good until now. But working with Joe, the compensation he gave her gave her back her dignity. She would go to the mall with my granddaughter and I, and when I said no to a Webkinz, my mom could say, I can do this. And that made her-- that's what gave my mom happiness, really.

Jake Bernstein

Throughout the mid to late 2000s, Caramadre increased the number of deals he did, as he took advantage of something people in the life insurance business now call the arms race. To an insurance company, a variable annuity seemed like a great deal. You get this big chunk of cash. It's locked up and delivers a great stream of money from fee income.

Alex Blumberg

And so insurance companies competed with each other for the business of customers like Joe Caramadre by offering more and more enticements in their variable annuity packages.

Joseph Caramadre

As companies figured out in the early 2000s that this was a great profitable situation, their only goal was to accumulate assets. So they started with deposit bonuses. I give them $1 million. They put $50,000 or $60,000 right in my account, day one. So I earn 6% the day I buy this.

Jake Bernstein

In other words, life insurance companies literally paid people to buy these products. But wait, there's more. They also provided increasingly exotic investment options for where you could put your money.

Joseph Caramadre

Double beta funds, inverse funds. You could bet the Japanese yen, the Mexican peso. You can bet the Saudi Arabian nuclear fund. I'm making a joke there, but there were funds that I never even heard of.

Alex Blumberg

And these are all riskier and riskier funds but that offered potentially greater and greater returns?

Joseph Caramadre

Yes. And we did not pick very stable, secure funds, government bond funds, which we knew would not have much risk or much reward. I'm going to pick the most aggressive fund known to man that is available in that variable annuity portfolio.

Jake Bernstein

Companies piled on more bells and whistles with fancy names, rising floors, earning enhancements, bonus credits, ratchets. For Caramadre and his team, they watched each new enticement, each new bell and whistle, each new escalation in the arms race with glee and amazement. One broker I talked to said perusing the latest prospectuses and picking the best benefits for their clients was like ordering off a Friendly's menu.

Joseph Caramadre

Every month or so, my firm would come out with the top 10 lucrative variable annuities. Some of these were so incomprehensible when put on a chart, I had people laughing out loud at my office.

Alex Blumberg

And so over time, the insurance companies are taking what was essentially a sweet deal for you and making it sweeter and sweeter and sweeter.

Joseph Caramadre

Yes, and much more dangerous to them.

Jake Bernstein

I've talked with several actuaries and risk managers in life insurance companies, and they say they were aware of the risk, and they'd urge caution when new enticements were being discussed. But the eagerness to increase sales always carried the day.

Alex Blumberg

Plus, the insurance companies thought they would hardly ever have to pay out these death benefits.

Jake Bernstein

And also remember, throughout much of the 2000s, the market was doing pretty well, so chances were your account would be worth more than the death benefit anyway. That all changed with the financial crisis. The initial investments had lost money, but the insurance companies were still on the hook to pay that initial investment. So those death claims started to matter to the companies a lot more. And a few noticed that they were getting more claims than mathematical models predicted they would.

Robert Flanders

Apparently, they had done some sort of a map of where all these claims were coming from, and there were a lot of red dots around Cranston, which is where Joe was operating out of.

Alex Blumberg

This is Robert Flanders, a former Rhode Island state Supreme Court Justice, now in private practice, who served as Caramadre's attorney when the insurance companies started suing him.

Jake Bernstein

Flanders represents Caramadre in cases brought by two life insurance companies, both owned by the same conglomerate. The companies claimed that the applications that Caramadre filed were false and misleading, in part because they didn't tell the company that the annuitants were dying.

Alex Blumberg

To which Flanders argued, essentially, well, you didn't ask.

Robert Flanders

Who knows better than insurance companies how to vet people for health reasons when they want to do so? Try and take out a life insurance policy and try and skate by the insurance company when you've got some medical condition. The fact is, they didn't really care about it, and that's reflected in the fact that they didn't ask any of those questions. They didn't want to.

But what happened here is Caramadre turned this into a business. And it was OK, I guess, when he was doing it for friends and family and making occasional scores along the way. But when they started plotting out all the claims and saw that this guy was actually coordinating a voluminous submission of claims, and then as they dug a little deeper and found out that he had actually placed ads in the newspaper advertising for terminally ill patients, they just, I think, finally threw up their hands and said we've got to stop this somehow, some way. We're getting taken to the cleaners here.

Alex Blumberg

Of course, Flanders is quick to point out they could've stopped it themselves any time they wanted to.

Robert Flanders

All they had to do was change their applications or preclude this in their contracts, change the forms. These are the lords of the forms, these folks. All they had to do was put something in there, ask the right questions, or preclude terminally ill patients from participating as annuitants, and it would've stopped it.

Jake Bernstein

To date, there have been at least eight civil court cases filed against Caramadre or his investors. So far, a federal judge in Rhode Island has largely sided with Caramadre. In one ruling, the judge wrote, quote, "It is a bit ironic for plaintiffs, the life insurance companies, to suggest that they did not know the true nature of contracts that they themselves drafted."

Female Reporter

And now from the NBC 10 I-Team, who would use terminally ill patients to line their own pockets?

Alex Blumberg

But Caramadre still wasn't home free, because there was a criminal case forming against him as well.

Female Reporter

One Road Islander has allegedly been arranging annuity investments using patients who are near death. NBC 10's chief I-Team reporter--

Ira Glass

Alex Blumberg and Jake Bernstein.

Coming up, second thoughts about multi-multi-multimillionaires. Profiting from the deaths of strangers. Alex and Jake continue the story in the second half of our show. That's in a minute from Chicago Public Radio and Public Radio International when our program continues.

It's This American Life. I'm Ira Glass. Our program today, Loopholes, the story of Joseph Caramadre continues. He believed that the loophole that he has found in a common kind of insurance contract was perfectly legal. Not everyone agreed. Alex Blumberg and Jake Bernstein pick up the story.

Alex Blumberg

In June 2009, Caramadre got word that a hospice nurse he'd worked with had been contacted by the FBI and that the Department of Justice was investigating Caramadre for possible crimes. And soon enough, news of this investigation leaked to the media.

Male Reporter

This man is Joseph Caramadre, well known in business circles. He's been described as a generous and well-respected Rhode Islander, who's raised millions for the Catholic church, donates thousands to area charities. But the I-Team has learned he's also the target of a federal grand jury criminal investigation.

Jake Bernstein

Soon after learning of the investigation, Caramadre and his lawyer, Robert Flanders, requested a meeting with the prosecutors.

Robert Flanders

We met with US Attorney's Office early on and tried to persuade them that this was a civil matter at best and not something they should be having any interest in. But they were morally outraged, the lawyers were for the government, that Caramadre, in their opinion, had taken advantage of poor, old, sick people.

That he was a guy who was just throwing a few shekels at some poor, sick people at the end of their lives, and he was reaping the lion's share of it. And they didn't like the stink or the smell of it, and they didn't like what they considered the inequity of it.

Alex Blumberg

Over a period of two years, a grand jury investigated Caramadre's scheme, and the FBI fanned out and interviewed witnesses. Hospice workers, investors, family members of annuitants, like Stephanie Porter.

Stephanie Porter

I came home one day and found a card in the door from the FBI that said call me. And my husband came home that day from work, and I looked at him. I was laughing, and I said the FBI was here. He was like, what? I said, OK, what did you do? He goes, well, I was going to ask you the same thing.

Jake Bernstein

Stephanie Porter's mom, Bertha Howard, had received the same visit from Raymour Radhakrishnan that Charlie Buckman and his wife had gotten. Radhakrishnan had shown up with a check for $2,000, and they'd agreed he'd come back later with papers to sign and more money. But by the time Radhakrishnan made it back for a second visit with the documents ready to go, Stephanie's mom was close to death.

Stephanie Porter

If she tried to sign her name, she'd sign instead of signing Bertha, she'd sign B-B-B-B-, then E-R-T-H-A. She tried to sign Bertha D, and it was Bertha D-D-D-D-D. So he said, you know, just do it to the best of your ability. And he said, I'm going to take the paperwork with me. We'll see what happens, and I'll be in touch.

And then it just so happened that the next time he called me, he said, I just called to let you know that the company wouldn't accept your mom's papers because of all the inconsistencies in her writing. And I said, I fully understand. It was too far advanced by then. I said, but at the same time, I said, my mom passed away. And I think she had been gone a few days.

And it was, I'm very, very sorry. What could I say but don't be sorry. I can't thank you enough for what you did for my mom and did for us. And that was the end of story, never heard from him again.

Alex Blumberg

The government says this wasn't the end of the story, though. According to the government's case against Caramadre and Radhakrishnan, someone forged clean versions of Bertha Howard's signature and used them to open an account.

Jake Bernstein

And it wasn't just Stephanie's mom. In November 2011, a Rhode Island grand jury issued a 66-count indictment against Caramadre and Radhakrishnan. Five of those counts involve forged signatures of dying people.

Alex Blumberg

Caramadre denies the government's allegations. He says in four out of five of those cases, what the government alleges to be forgeries were, in fact, real signatures. In the case of Stephanie Porter's mom, he says, her application was used to open an account by mistake, but no money was ever invested in that account. Documents show this to be the case.

Jake Bernstein

But the government makes other allegations as well. They charge in the indictment that Radhakrishnan, at Caramadre's behest, misled people about the true purpose of the documents they were signing in order to get their signatures and personal information.

Alex Blumberg

The indictment lays out 25 cases where the government alleges that this happened. According to the government, Radhakrishnan told some dying people their signatures were simply to acknowledge receipt of a charitable donation. Others he allegedly told that their family members would be the beneficiaries.

The government also alleges that Radhakrishnan simply wasn't upfront about the purpose of these signatures and that sometimes the dying people had no idea someone else stood to profit. The government says this amounts to a criminal conspiracy on the part of Caramadre and Radhakrishnan to defraud insurance and bond companies and steal the identities of dying people.

Jake Bernstein

The lead government prosecutor declined to talk to us, as did Raymour Radhakrishnan. Caramadre says the government misunderstood his scheme. He says he instructed Raymour to explain the program fully to all the participants and to make sure that they had an understanding of what they were signing.

How were the annuitants victimized, Caramadre asked? They were all financially better off after having gotten involved. He says that during the entire decade and a half he was paying dying people to fill out documents for his scheme, not one of them, or their family members, ever complained to anyone about what he was doing. None of them had a bad word to say about him. That is, until the FBI showed up and started alleging that he had committed crimes.

Lee Wilker

Good morning Mr. Mizzoni.

Robert Mizzoni

Good morning.

Lee Wilker

My name, again, is Lee Wilker. I'm with the United States Attorney's office for the District of Rhode Island. You understand what's happening today here?

Robert Mizzoni

I'm going to try.

Robert Mizzoni

OK.

Jake Bernstein

This is sound from the taped testimony of another annuitant, Robert Mizzoni, who at the time was a month shy of his 86th birthday. Mr. Mizzoni has since died. Unlike many of the people Caramadre signed up over the years, Mizzoni had been a close friend of the family.

Lee Wilker

So how long have you known Joseph Caramadre?

Robert Mizzoni

When they were little kids, they'd come, and I used to take them in the school bus.

Lee Wilker

So you would take Mr. Caramadre and four of his siblings in the school bus?

Robert Mizzoni

Yeah. I had a school bus taking them to school at the Catholic school.

Alex Blumberg

To Caramadre, Robert Mizzoni offers a prime example of how the prosecutors and the insurance companies turned people who had no beef with him, maybe even liked him, into witnesses against him.

Jake Bernstein

Over the years as Caramadre grew up and got rich, he stayed in close contact with Mizzoni and his wife. They continued to attend the same church, and he would do favors for the Mizzonis. Mr. Mizzoni himself testifies that Caramadre would prepare their tax returns for free. He helped them buy a house.

And in 2004, he gave Mr. Mizzoni a check for $2,000 and signed him up as an annuitant. Caramadre says he explained the basics of the program to Mr. Mizzoni, and in fact, Mr. Mizzoni signed an acknowledgement form. But in these videotaped interviews, Mr. Mizzoni said he had no idea what was happening.

Robert Flanders

At some time in the spring of 2004, you met with Mr. Caramadre at his office, and he gave you $2,000, right?

Robert Mizzoni

Yeah, he gave me $2,000. But he says, I've got something for you. He gets a check, and he gave it to me.

Robert Flanders

Did you have a conversation with him before that?

Robert Mizzoni

No conversation. It was just, see you later. That's the conversation.

Robert Flanders

You don't remember him telling you about what the check was for?

Robert Mizzoni

No, never. Nobody told me that, nothing what it was for.

Robert Flanders

Didn't you believe that, as a result of that meeting, you had entered into some investment with Mr. Caramadre?

Robert Mizzoni

No, no, no, no, no, no, no.

Robert Flanders

Isn't it true that you signed some documents?

Robert Mizzoni

I didn't sign nothing.

Jake Bernstein

During this deposition, Caramadre was in the room with Robert Mizzoni, and it seemed to him like the FBI had misrepresented his scheme.

Alex Blumberg

According to Caramadre, Mizzoni is telling the story this way because an FBI agent, Pamela McDade, gave Mizzoni the wrong impression when she came to interview him.

Robert Flanders

Did she say why she was meeting with you?

Robert Mizzoni

You know, I think she told me about some information about Joe Caramadre. That's all.

Robert Flanders

What information did she tell you?

Robert Mizzoni

She told me that they were checking him out.

Robert Flanders

For what?

Robert Mizzoni

On insurance for people that died.

Alex Blumberg

On insurance for people that died, says Mizzoni. They had a list of names, so that they could bury everybody.

Robert Mizzoni

She had a list of names so that he could bury everybody, and he'd become a multi-multi-multimillionaire?

Robert Flanders

She really said that to you?

Lee Wilker

Objection.

Robert Mizzoni

Huh?

Robert Flanders

Did she say that to you?

Lee Wilker

I'm just objecting to the question but--

Robert Mizzoni

I'm answering your question.

Robert Flanders

I know you are. Did she tell you that he would become a multi-multi-millionaire?

Robert Mizzoni

Yeah, he would become a multimillionaire with all the names. She showed me the names.

Alex Blumberg

She showed me the names, he says. But I didn't know not one of them until I seen my own.

Robert Mizzoni

Until I seen my own.

Lee Wilker

Objection.

Robert Flanders

And what did she tell you about what these names represented?

Robert Mizzoni

Just that they represented their deaths.

Alex Blumberg

The names represented death.

Robert Flanders

Did that get you upset?

Robert Mizzoni

Huh?

Robert Flanders

Did that make you upset?

Robert Mizzoni

Make me upset? Because my body is going to be sold without my wife getting a dime. How do you feel? How do you feel? How do you feel if I was to bury you, and you got insurance, and your wife don't get nothing. No way is it going to happen to me. I got news for you. They better drop this policy in a hurry. If they don't, I'll sue. How about that one?

To me, he's still a good friend, OK? Because we all make mistakes. Remember that. But this is a big one. This is a big one that comes up this way.

Alex Blumberg

If I died, he would have collected all that goddamn money, he says, when my wife wouldn't have gotten a dime.

Robert Mizzoni

He would've collected all that goddamn money when my wife wouldn't have gotten a dime. Look at the beneficiary-- Paula, his wife.

Alex Blumberg

We reached out to Agent McDade, but she didn't return our phone calls. An FBI spokesman said they don't comment on active cases. To Caramadre, though, Mizzoni's anger was all about those numbers, millions of dollars that Caramadre would allegedly make off of Robert Mizzoni's death.

Joseph Caramadre

He's being informed, or told, or given the understanding that my wife gets $1 million when he dies, and we only invested $10,000. So he doesn't know the real facts. I believe if he thought my wife was getting $10,000 back, and I put up the $10,000, and he already got his $2,000, he may not be upset at that at all. Of course, he would need to have been told the truth.

Jake Bernstein

In November, a judge or jury will have to decide whether the scheme was a criminal one or not, and the decision in large part comes down to whether or not these dying annuitants understood what they were signing, which, when you think about it, is a complicated question.

Alex Blumberg

The court will have to suss out what exactly when on in those hospital and hospice rooms between Radhakrishnan and the dying people he was trying to explain Caramadre's scheme to. Remember, he was in his early '20s, just out of college, sitting across from very sick people, many on breathing machines, hopped up on pain medications, anxious family members all around. He was trying to explain how a variable annuity works.

Jake Bernstein

Looming over all of this are not facts, but feelings, our feelings about death. Death makes a squeamish, and people profiting from death, even more so. Caramadre says that squeamishness blinds people to what was actually going on here. According to court filings, more than 150 terminally ill people got at least $2,000 from Caramadre. Those that signed up to be measuring lives got even more. And sure, Caramadre and his clients stood to profit from people dying, but he's certainly not alone in that regard.

Joseph Caramadre

A florist makes money. A church or temple makes money. A casket company makes money. A limousine company makes money. Nursing homes make money when people are sick and die. Hospitals do, OK? Pension plans make money. They can't wait for people to die so they don't have to pay them every month anymore.

Our state is waiting for people to die every day so we can clear up this billion-dollar fiasco of paying pensioners. So death is involved in many aspects of our lives. So is it squeamish? Yes. But not if it's done morally, ethically, and legally.

Alex Blumberg

The legal part will be up to the court to decide. But the moral and ethical parts is where it gets blurry. On the one hand, Joseph Caramadre says before he even began signing up dying people, he vetted the idea with this priest. And in fact, his priest went on to become an annuity investor. The mother of the local monsignor, she served as a measuring life.

Jake Bernstein

On the other hand, there are people like Stephanie Porter, the woman whose mother was too weak to sign the documents. Even though she and her mom were willing to sign on with Caramadre, as she's learned more, she's horrified.

Stephanie Porter

You're using people. You know that they're going to die, and you're using them to your advantage so that you can gain? It just disgusts me to think of it that way.

Alex Blumberg

When you talk to Caramadre, the way he explains it is, I can get this advantage from the insurance company for myself and my clients. I can pay somebody who is at the end of life a little bit of money for their signature, and everybody is happy. Does that reasoning make any sense to you?

Stephanie Porter

No. So you put a dollar amount on my mother's death is basically what it comes down to. I lose my mom, who's my best friend, who's my world, and in me losing my mother forever at the age of 64, you in turn profit and get x amount of dollars. It's slimy what the man did.

Jake Bernstein

No matter what the court decides, Caramadre's scheme would not be possible today. Several of the companies Caramadre targeted have stopped selling these variable annuities. Not because of what Caramadre did, but because the promises they made are proving too expensive to deliver. Death turned out to be a bad business for them.

They are potentially on the hook for a huge amount of money. Some companies have already declared billions in losses. Almost all of them have changed their contracts. Caramadre's loophole has been closed.

Ira Glass

Jake Bernstein and Alex Blumberg. Alex is one of the producers of our show. Jake is a reporter with the nonprofit investigative news organization ProPublica. A more detailed version of their story with video excerpts of the depositions you heard and graphics and documents is at ProPublica's website.

They're also interested in having a real discussion with people about whether it is acceptable to profit from the deaths of strangers, and I hope you might join that. You can do that at propublica.org.

Credits.

Ira Glass

Our program was produced today by Robyn Semien with Alex Blumberg, Ben Calhoun, Sarah Koenig, Jonathan Menjivar, Lisa Pollak, Brian Reed, Alissa Shipp, and Nancy Updike. Our senior producer is Julie Snyder Seth Lind is our operations director. Emily Condon's our office manager. Music help from Damien Graef and Rob Geddes.

Production help from Tarek Fouda. Special thanks today to Joe Rosenberg for telling us about Kathy Stuart's research on 17th century suicides by proxy, and for helping us produce that story. And thanks to Michelle Harris. Kathy Stuart's book Suicide by Proxy, crime, sin and salvation, and enlightment in Germany, will be out in 2013.

This American Life is distributed by Public Radio International. WBEZ management oversight for our program by our boss, Mr. Torey Malatia. He keeps sending out these hilarious-- You're fired. Just kidding!-- greeting cards to the WBEZ staff.

Joseph Caramadre

The expression on the poor manager's face was such that the poor guy said I'm going to lose my job.

Ira Glass

I'm Ira Glass back next week with more stories of This American Life.

Announcer

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