(September 25 – 16:50 ET) – The Securities and Exchange Commission has charged fraudster Martin Frankel and an alleged accomplice, John Hackney, with numerous violations of federal securities laws.

Frankel, who was permanently barred from the securities industry in 1992, is alleged to have masterminded “a massive fraud to loot the assets of Franklin American Corp., a publicly traded holding company, and numerous insurance companies in Tennessee, Alabama, Oklahoma, Mississippi, Missouri and Arkansas. Hackney, who was CEO of Franklin American, allegedly participated in Frankel’s fraud and deliberately hid Frankel’s control of Franklin American from the SEC, state insurance regulators, employees of Franklin American and the public.

The SEC alleges that Frankel began his scheme in 1990, acquiring businesses with liquid assets. He hired Hackney in 1990 to help him acquire a bank and an insurance company, and to hide his control of them. The SEC says, Hackney was positioned to serve as a front for Frankel, receiving $8 million over the eight years he helped Frankel.

Frankel ultimately acquired 83% of the outstanding stock of Franklin American and from 1991 through April 1999, he used it to acquire additional insurance company subsidiaries. These acquisitions invested their assets, which are reported to exceed US$215 million, through Frankel.

Frankel claimed to invest their assets through accounts at Liberty National Securities Inc., a Michigan-based broker. These accounts didn’t exist. The SEC alleges that Frankel fabricated trades, trade confirmations and account statements. Instead he invested some money at other firms and misappropriated millions to live on.

The scheme was uncovered when fire officials were called to Frankel’s Connecticut mansion to attend to papers he set on fire to cover his fraud, before fleeing. Frankel was ultimately arrested in Germany last September and sentenced to three years in prison there for bringing more than US$5 million worth of undeclared diamonds into the country during his flight from the law.

On September 18, the SEC charged Liberty National Securities and its president, Robert Guyer, with aiding and abetting Frankel’s fraud.

The SEC is seeking permanent injunctions against Frankel and Hackney, disgorgement of ill-gotten gains, civil penalties, and an order barring the pair from serving as officers or directors of a public company. Frankel also faces 36 criminal charges in Connecticut, and civil suits from U.S. insurance regulators.
-IE Staff