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Texas Multi-Million-Dollar Fraud: 32 Indicted

A Dallas County grand jury indicted 32 people for "clean sheeting," a fraudulent practice that involves obtaining life insurance by submitting an application that hides the fact that the applicant has a terminal or life-threatening illness.

The indictments allege that insurance companies issued more than $10 million in life policies based on applications falsified by the defendants.

All those indicted were charged with securing the execution of a document by deception, a first-degree felony (5-99 years or life) when the combined value of the policies was more than $200,000 and a second-degree felony (2-20 years) when the combined value was $100,000 to $200,000. Persons indicted include three licensed insurance agents and a former viatical settlement marketer who allegedly masterminded a clean sheeting ring.

The indictments culminated an eight-month "clean sheeting" investigation by the Insurance Fraud Unit of the Texas Department of Insurance, the State Securities Board and the Dallas County district attorney's office.

"Getting these indictments took a tremendous amount of hard digging," said Insurance Commissioner Jose Montemayor. "Cases like this are hugely important because insurance fraud drives up the premiums consumers pay for coverage. That's why fighting fraud is a top priority with TDI and with me."

Those indicted by the Dallas grand jury include:

In addition to a first-degree felony charge of securing the execution of documents by deception, Davis was charged with five first-degree felony counts of money laundering.

Others indicted were individuals who allegedly obtained life policies ranging from $25,000 to $100,000 by signing applications that disclosed no health problems when, in fact, they suffered from life-threatening illnesses.

Most were recruited by Davis.

An affidavit submitted by a TDI investigator alleges that Davis and another man recruited people with catastrophic illnesses and sent them to Squyres, who helped them apply to several life insurance companies he represented.

People who allegedly falsified their applications immediately sold their policies on the viatical settlement market for a few thousand dollars, far below the full amount of the death benefits. Investors bought the policies with the expectation of making a profit when the insured persons died. Each of the indicted policyholders bought and viaticated several policies. Many of the policies have face values of $100,000.

Both insurance companies and viatical settlement investors are harmed economically by clean sheeting. If a policy has been in force for two years or more, it is "incontestable," meaning it can't be canceled because of misrepresentation such as clean sheeting. Many of the policies bought by investors are still within the two-year period when they can be canceled because of fraud.

Clean sheeting takes advantage of the fact that some life insurance companies do not require physical examinations on cash-value policies of $100,000 or less when the application discloses no significant medical problems and the applicant is relatively young. This absence of conventional underwriting has led to the labeling of such policies as "jet issue."

Clean sheeting is not limited to Texas. Several other state insurance departments have consulted with TDI's Fraud Unit about clean sheeting.

(Press release from Texas dept. of insurance 1999)

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The Viatical Fraud trial began 4/10/00. For details, click HERE 

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