The mechanic got $5,000. The millionaire, Democrat Terry McAuliffe, made at least $47,000. But the estate planning lawyer, Joseph Caramadre, went to prison instead of Rome.
Caramadre helped McAuliffe place a bet on the dying man based on a loophole the estate planner had sniffed out in the fine print of insurance annuities. Although the loophole was legal, Caramadre has pleaded guilty to stealing the identities of the terminally ill as part of his scheme. He is in federal prison, awaiting sentencing.
There is no indication that McAuliffe or other investors were aware that patients, recruited through hospices and a Catholic newspaper, were sometimes duped into participating. McAuliffe has called himself a “passive investor.”
But at least some investors knew that they were betting on the lives of specific, dying individuals, according to two of them — a former judge and a Hollywood producer.
“There was certainly full disclosure to my law firm when we chose to invest in this,” said Robert G. Flanders Jr., a former Rhode Island Supreme Court justice who, for a time, defended Caramadre in a civil suit that insurers brought against him.
A campaign spokesman declined to say whether McAuliffe also knew of the basics of the investment.
“At the time that he invested, he was told Mr. Caramadre was a respected figure in his community and that he was led to believe that he was investing in a legitimate pooled annuity,” campaign spokesman Josh Schwerin said in an e-mail.
The ghoulish quality of that investment could add to the impression — created by his long history of controversial business and political schemes — that McAuliffe is an unscrupulous dealmaker. But it is complicated enough to make it difficult to understand — and to determine what exactly McAuliffe knew about it.
Caramadre used his knack for contract nitty-gritty to hatch a scheme that allowed investors to receive a stranger’s death benefits. With traditional life insurance, someone has to have what is called an “insurable interest” to take out a policy on someone else — they have to stand to suffer financially in the event of the person’s death. Typically, it is not possible to have an insurable interest in a stranger.
Caramadre noticed that the rule did not apply to certain annuities. And there was no requirement to submit to a health exam. Further, because the annuities guaranteed a minimum return, investors could play the stock market risk-free. If the investment went up, the investor reaped that profit. If it went down, he still got his initial investment back.
Under Caramadre’s scheme, an annuity would be created in the name of a dying person, listing the investor as its primary owner. When the annuitant died, the investor could cash out the policy or let the investment ride the stock market for a number of years without fear of losing money. For a fee, some policies awarded investors double the death benefits.