Obamacare and Equity Funding (1973)

[Written November 2013]

Back when I was studying accounting, the Equity Funding scandal was fresh – but the lessons learned from it need to be told to the Obamacare brain trust.

The scam involved creating fake life insurance policies that didn’t exist. It involved a thing called reinsurance where the company that signs up the client then sells the policy to another insurance company who then collects the premiums and pays out the benefits.

The finder’s fees were then used to pay the premiums which then fed creating more fake policies. The company grew very fast and was very profitable.

Equity Funding fell apart when the company that had bought the policies noticed that nobody died and they were not paying out claims. It’s pretty hard to fabricate a death certificate for a person that doesn’t exist.

If insurance companies can directly sign up people and get a $6-10k “subsidy” payment, it doesn’t take a genius to see that someone might start creating fake people to get the subsidy – and then have a bunch of people that go the entire year without making a claim.

You know, if the insurance company isn’t “blue”, it could be a “bad apple”

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2 Responses to Obamacare and Equity Funding (1973)

  1. JayMar says:

    I remember Stanley Goldblum who after serving several years in the klink was released and within a few years he was incarcerated again for some medical swindles in California. Back in 1983, after I retired from the US Army, I went to an interview with Century Assurance in San Antonio and worked there for about a week. You could tell the operation was shoddy and everything under the table, and the office build for quick dismantling. All their papers appeared legal except they were printed by computers, in an area not accessible to advisors. One day, a week after I was hired, I found the name Stanley Goldblum and quit instantly. A few years later he was arrested again.

    It’s funny because I retired from USAMI and had some contacts to verify that this Stanley was indeed the same Stanley as in Equity funding.

    • Fred Stiening says:

      Mr Goldblum died in 2011.

      Here is an interesting wrinkle to the equity funding case. One of the people who knew what was going on tried to tell the SEC and was ignored. So he told a stockbroker who then told his clients to sell. That DID get the attention of the SEC and provoked the investigation that uncovered the scheme.

      His reward? A charge of insider trading. The Supreme Court ruled that because his motive was not to for personal gain, they threw out the case.

      http://dealbook.nytimes.com/2014/12/12/the-gift-of-inside-information/?_r=0

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