Summary: Despite being barred from the securities industry, Martin Frankel is alleged to have anonymously acquired and controlled insurance companies in several states and to have exercised secret control over a small securities firm, using it to take custody of insurance company assets and provided false documents on investment activity. He allegedly diverted these assets to other accounts he controlled to support the scam and his lavish lifestyle. Weaknesses in insurance regulatory oversight, including inadequate analysis of security investments and failure to detect misappropriate of assets, delayed detection of the scam. GAO has noted regulatory weaknesses in regard to change of ownership approvals, route financial analyses, and periodic on-site examinations. Furthermore, the National Association of Insurance Commissioners lacks effective interstate coordination oversight of entities under holding companies and has gaps in control to prevent the migration of unscrupulous securities brokers to other sectors of the financial services industry. The Gramm-Leach-Bliley Act of 1999 underscores the importance of consultation and information-sharing among federal financial regulators and state insurance regulators. Regulators recognize the need to improve their coordination and have taken or plan to take several measures. GAO summarized this report in testimony before Congress; see: Insurance Regulation: Scandal Highlights Need for States to Strengthen Regulatory Oversight, by Richard J. Hillman, Associate Director for Financial Institutions and Market Issues, before the House Subcommittee on Finance and Hazardous Materials, Committee on Commerce. GAO/T-GGD-00-209, Sept. 19 (16 pages).
