Fraudster From St. Thomas Cheated Elderly Out of Millions With Insurance Scam
Vincent J. Bazemore, Jr. of St. Thomas
DALLAS – Raymond Croteau, a 77-year-old retired salesman of modest means, has an insurance policy on his life totaling $4.5 million. But none of his family members will get a dime from that policy whenever Croteau dies.
That’s because Croteau and several other elderly people were caught in a large life insurance fraud scheme. The ringleader, Vincent J. Bazemore Jr. of St. Thomas, was sentenced to 15 years and eight months in federal prison last month and ordered to pay $2.6 million in restitution. Most of the seniors are relatives or friends of Bazemore’s wife who are living in Utah. This is why it’s important to only view reputable insurance companies such as PolicyMe and more, to research the policies of many so you know you’re getting the best deal, as well as not being scammed.
The case is unusual because federal fraud victims rarely recoup their losses, let alone profit from such schemes. Also, the scam shed light on an unsavory aspect of the insurance industry: the wagering on a human life, a practice that’s legal in some cases despite being generally frowned upon.
EAA PF LLP, a German bank that is still paying the premiums on active life insurance policies for Croteau and three other seniors, could end up earning a profit. About $5 million in insurance premiums have so far been paid, court records show.
The bank lost $1.7 million in connection with other Bazemore insurance policies that were canceled when the fraud came to light. But it could be paid more than $16 million following the deaths of the four seniors whose policies remain in force. All them are in their 70s or 80s.
The amount of death benefits depends on the “timing of the death of the insured,” said Assistant U.S. Attorney Chris Stokes in a court filing. It’s therefore possible that EAA’s losses “will be fully compensated,” he said.
Bazemore’s defense attorneys argued that EAA wasn’t entitled to any restitution because it made an “informed business decision” to keep paying the premiums and stood to profit from the death benefits.
“Indeed its profit may be considerable, as the trial testimony shows that the policies involved unrealistic life expectancies and large death benefits,” said Kevin Joel Page, Bazemore’s attorney, in court documents.
The government conceded in court filings that for the policies to be unprofitable, the seniors would have to live 20 to 30 more years.
EAA declined to comment to the Virgin Islands Free Press.
Arlene Harris, 77, said she didn’t know her life insurance policy that Bazemore set up was still active or that the German bank could profit from her death.
Harris said she has no doubt the bank is waiting for her to die. She said she has diabetes but is “really in pretty good health.”
The investment may not be as good as the company thought, she said.
“They may be paying for many, many years,” the retiree said. “I hope this company in Germany falls flat on their face.”
Harris is the grandmother of Bazemore’s wife, Angelee Bazemore. A widow, she testified during the trial that Vincent Bazemore convinced her to take out three life insurance policies. As a reward, Bazemore paid for a Disneyland trip for her and another relative, court records show.
“He would take care of all the paperwork, he would take care of all the financing,” Harris said during the trial. “There would not be any out-of-pocket money from me, and after a two-year period then I would receive money because they would be sold to an investor.”
The idea of people viewing a person’s life as an investment and hoping they die as soon as possible is not new. It’s also not illegal — if done according to industry standards.
Under so-called life settlements, also known as death bonds, people can take out life insurance policies and then sell them after two years to investors, who continue making the annual premium payments. When the insured dies, the investors are paid as beneficiaries.
Since the financial crisis, the market for life settlements has slowed significantly, said Mary Jo Hudson, a former Ohio insurance director. There was a lot of fraud and poor business practices associated with those policies, she said.
“That market is not heavily regulated, and you don’t know who owns your policy,” Hudson said. “It’s not the best market to be involved with.”
The Bazemore scam involved “Stranger-Originated Life Insurance,” or STOLI, policies worth millions. Bazemore, a former licensed insurance agent, helped set up the policies in 2008 for Croteau and the others living in Utah, as well as in Missouri and other states.
STOLI policies are illegal because state regulators and insurers want those who take out life insurance policies to be related to those who are insured. That is the only way to guarantee they will have an interest in the person continuing to live, said Hudson, who was the government’s expert witness during the Bazemore insurance fraud trial.
The purpose, Hudson said during the trial, is to “avoid the moral hazard” of “wagering on a human life.”
‘Dead peasant’ policies
Such wagers are still being made, however.
Some large U.S. companies used to take out life insurance policies on their rank-and-file employees to collect tax-free benefits after they died. Known as “dead peasant” insurance, the practice was curtailed by Congress in 2006. Today, company-owned life insurance, or COLI, policies can be taken out only on key corporate executives.
EAA’s decision to keep paying premiums in the Bazemore case is a risky for another reason. It is not the beneficiary of the life insurance policies. The beneficiaries are trusts Bazemore set up for the elderly applicants. The trustees are the applicants’ adult children, in many cases.
As a result, the German bank has no idea how much the policies are potentially worth, court records show. EAA doesn’t have access to the seniors’ medical histories, life expectancies and other data since it’s not the beneficiary, records show.
Bazemore, 41, took out loans in 2008 to pay the policy premiums for the first two years. After that, his plan was to pay off the lenders when he sold the policies to investors. The money left over would go to the seniors.
But he never got a chance to sell the policies. The scheme began to unravel later in 2008 when an insurance investigator contacted the FBI about possible fraud.
EAA has told prosecutors that even though it continues to pay the premiums it has no assurances that the insurance companies will “honor the policies because of Bazemore’s fraud,” court records said.
EAA is in discussions with the insurers about being substituted as the beneficiary, court records show.
Inflated income figures
STOLI policies often lead to fraud, experts say.
Bazemore committed fraud when he greatly inflated the seniors’ net worth on the insurance applications, indicating they were worth millions when in fact they were retirees living on Social Security, authorities said.
As their agent, Bazemore earned more than $900,000 in commissions for the policies, court records show.
Page, Bazemore’s attorney, said in court documents that his client “appeared genuinely to believe he was brokering mutually advantageous deals or at least deals that both the insurance companies and the lenders would have desired.”
Bazemore, a chess instructor who was raised in St. Thomas, was running the insurance fraud scam while awaiting sentencing for an unrelated 2009 securities fraud conviction. In that case, a federal judge gave Bazemore five years in prison for selling fraudulent investments and ordered him to pay $15.7 million in restitution to swindled investors.
That case also involved elderly victims, some as old as 90, who lost all their money in the scheme.
Croteau declined to talk about the case, saying he wants to forget that chapter of his life and move forward. He did confirm that he didn’t receive any money from the scheme.
In testimony during Bazemore’s trial, Croteau said he met Bazemore in 2008 at a business seminar and discussed life insurance with him. Croteau, who at the time was retired and receiving Social Security, said he expected to earn $100,000 from the transactions.
Croteau and other elderly applicants said during the trial that Bazemore handled all the paperwork, obtained the financing and pitched the policies as a good investment.
“I didn’t have to worry about that, and it would be handled,” Croteau said. “When the policy is sold everybody gets their money.”
Harris said she didn’t earn a penny from her transaction aside from the Disney trip, but that it cost her close to $10,000 to hire a lawyer to “not be involved with the whole thing.”
She said she had no idea Bazemore falsified her net worth on the insurance application. The whole affair, she said, has harmed her relationship with her granddaughter, and that’s been the hardest part of the ordeal for her.
“She’s very special to me, but there’s not a closeness there anymore that there used to be,” Harris said.
As for Vincent Bazemore, “He’s not my favorite person in the world.”
AT A GLANCE: STOLI policies
What are Stranger-Originated Life Insurance (STOLI) policies?
STOLI policies benefit strangers — instead of family members — who wager that the insured will die soon so they can profit from the policy.
How do they work?
An insurance broker persuades an elderly person to apply for a life insurance policy in exchange for gifts or money. The broker sometimes falsifies the applicant’s net worth and other financial information to qualify for an expensive policy that will pay out a large sum. The broker obtains financing to pay the premiums until the two-year contestability period ends. Then the insured sells the policy to third-party investors for a lump sum payment, to be split between the broker and the insured. When the insured dies, the investors receive the death benefit.
Why are they illegal?
STOLI policies are illegal because state regulators and insurers want owners of life insurance policies to be related to those insured. That helps assure that the beneficiary will have an interest in the insured person continuing to live. To deter such policies, insurance companies require applicants to submit financial statements showing they have the means to pay the premiums without help from an investment firm.