A federal grand jury in Baltimore has indicted 31 people on drug-trafficking charges, officials announced yesterday, alleging a sophisticated and unusual operation in which illegal profits were laundered by purchasing life insurance policies for drug users and others, without their knowledge.

Authorities allege that Paulette Martin, 57, of Takoma Park and Richard Gunn, 52, an insurance agent in Burtonsville, acquired at least 17 life insurance policies over almost a decade.

"Some of those individuals did die sudden and violent deaths," said a law enforcement official familiar with the case who spoke on condition on anonymity because the information is considered sensitive. "The investigation into the circumstances surrounding those deaths continues."

Payments from the policies taken out for those who have since died generated hundreds of thousands of dollars, the official said. Proceeds were collected as recently as March. The defendants were not charged in connection with the deaths. The indictment alleges drug offenses and mail and wire fraud.

"This is sort of a novel and potentially cutting-edge form of identity theft," said Evan Hendricks, editor of Privacy Times, a Washington newsletter. "This is definitely a new spin, and it's quite a scary one, actually, in the sense that you start stealing people's identities and it only pays off when they die. That builds in all the wrong incentives."

The investigation began in October 2002, and the first arrests came last month. More followed this month, when search warrants were executed in Maryland, Washington and New York. Two of the defendants remain at large and are considered fugitives.

Martin, like most of the other defendants, is in the custody of U.S. marshals, a spokeswoman for Maryland U.S. Attorney Thomas M. DiBiagio said. Martin has appeared in court but has not yet entered a plea, the spokeswoman said.

The spokeswoman did not know Gunn's status, and it could not be determined late yesterday. A woman who answered the phone at Gunn's residence said he was not available and declined to comment further or identify his attorney.

DiBiagio's office said the defendants allegedly distributed multiple kilograms of cocaine, crack cocaine and heroin and became a "major drug source" in the Baltimore-Washington area. Agents seized more than $1 million in the searches this month, as well as eight handguns and "large quantities" of cocaine and heroin, DiBiagio's office said.

But, officials and experts said, the enterprise is notable less for the scale of the drug operation than for the alleged effort to launder proceeds through a form of identity theft.

Dean Boyd, a spokesman with U.S. Immigration and Customs Enforcement, said the alleged money-laundering aspect of the enterprise has few precedents. It is reminiscent, he said, of a practice by Colombian drug cartels, which in the 1990s purchased life insurance policies in Europe and other places, designating cartel associates as beneficiaries. Law enforcement agents believe the cartels laundered $80 million worth of drug proceeds through such policies.

In those instances, however, the policies were cashed out after short periods of time, before the deaths of the people for whom they were taken out. Liquidating a policy in that way came with financial penalties, but cartel associates received funds that appeared to be legitimate insurance or investment proceeds.

By contrast, the policies described in the indictment announced yesterday paid when the people for whom they were taken out died.