Con man
targeted isle firm

Grand Pacific Life rejected the
offer; the would-be suitor has since
disappeared with other investors' money

By Peter Wagner
Star-Bulletin

When the $30 million-plus offer to buy the company came early this year, Grand Pacific Life Insurance Ltd. considered it, as would any responsible insurer, the firm's top executive says.

"I get calls, at least one every two months, from all around the United States from other insurance companies that either want to do business in a joint partnership type of thing with us or want to talk about buying us because we have this unique location in Hawaii and we do business in the South Pacific," said James Fagan, president and chief executive officer at Grand Pacific Life.

"My duty to our policyholders is to review all of them and see if there's an economic benefit to work with an outside company."

But this suitor, representing St. Francis of Assisi Foundation, turned out to be less than pious, Fagan said.

"One of the reasons this guy was successful was he was playing on greed," said Fagan, referring to Martin Frankel, the mastermind of what appears to be one of the largest-ever insurance scams.

"He was offering very large amounts of money just haphazardly on very simple terms, so he was making it appear to be very attractive. Someone who wasn't doing their due diligence would look to potential profit rather than doing a good analysis, which is what we did."

Fagan, citing company policy to protect the privacy of its dealings, would not identify the broker who called Grand Pacific on behalf of the foundation.

Fagan said the proposal was rejected because the company couldn't get financial information to verify the deal was legitimate. He speculates his company was targeted because of its size -- second-largest of Hawaii-based life insurance companies with $156.2 million in assets last year.

Grand Pacific was founded in 1953 by the Lau family. Current chairman Daniel Lau was among the founding members.

Fagan only this year assumed his position in the company.

He noted that a statewide industry association, the Hawaiian Life and Disability Guarantee Association, offers a safety net to members in financial trouble. Its national counterpart, the National Organization of Life and Health Guarantee Association, is believed to be helping a handful of mainland insurance companies that fell victim to Frankel's apparent scam.

Asked if the company is now for sale, Fagan said any good businessman leaves the door open to new offers.

"We are always looking for business opportunities to joint venture with other companies," he said. "Acquisition is always a possibility for any company."

Grand Pacific has suffered the effects of Hawaii's stale economy in recent years, he conceded. The company has cut its staff from about 35 to 22 employees in the past several years. Total assets of $156.2 million in 1998 were down from $169.5 million the year before. Premiums last year totaling about $16 million were down more than $4 million from 1997. And claims paid out last year were slightly up.

"We're looking to trim our expenses, maximize output and get the most production from our people. And we're relying more and more on technology to be as advanced as possible," Fagan said.

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Persuasive personality
stripped investors
of millions

'He came across as an overly
bright child prodigy,' a lawyer says

Associated Press

NEW YORK -- The financier in jeans and a polo shirt was a cross between Woody Allen and David Letterman -- gangly and neurotic. He was also persuasive, offering an impressive biography and fantastic returns on safe investments.

To many investors, Martin Frankel looked like the Bill Gates of finance. Investing their money, he told them, was a "sacred trust," much like a doctor-patient relationship.

Only with Frankel's disappearance, investors say, was it clear they had been duped.

"He had a very disarming manner," said Jeffrey Creamer, a Toledo lawyer who represented three investors in a successful arbitration action against Frankel in the late 1980s. "If you ever thought you were going to find this great financial genius who was going to do all these wonderful things, he would probably look like Marty."

That image was shattered in May, when Frankel left behind burning files in his Greenwich, Conn., mansion and disappeared with what authorities say could be anywhere from $300 million to $2 billion in other people's money. The money belongs to small insurance companies and what investigators say was a bogus charity Frankel set up in the British Virgin Islands.

Authorities say it was largely through sheer personality that Frankel persuaded investors to entrust their money to him.

"I found his tone and presentation to be immature, sort of childlike," said another Toledo lawyer, Stephen Rothschild, who later sued Frankel on behalf of an investor. "He came across as an overly bright child prodigy."

But Creamer said that impression may have helped Frankel.

"The combination of what seemed to be a very strong dedication to the financial markets, coupled with this disarming, kind of goofy personality, is what made him a very, very effective fraud," Creamer said. "Had he been a sophisticated, suave, debonair kind of guy, he probably would not have gotten off the ground."

Frankel accompanied his frenetic but soft-spoken demeanor with biographical materials and figures purporting to show astronomical returns on conservative government securities. It was a talent that Frankel had even before John Schulte fired him from the Dominick & Dominick brokerage in Toledo during the 1980s .

"John Schulte, he used to say back in those formative years, Marty Frankel was the best paper trader he'd ever heard of -- just analyzing paper and turning figures into hundreds of thousands of dollars." recalled Ted Bitter, a Toledo tool-and-die mak er who invested with Frankel.

Frankel told investors he was able to make money through a special day trading system that involved staying up all night trolling news wires.

John and Shirley Herlihy, of Toledo, called Frankel after seeing his ad in the Yellow Pages. They wound up giving him about $230,000. "He said he looked upon this as a sacred trust, like a doctor or a lawyer; that his handling of their money was a great privilege; that he would always treat it as this sacred trust," Creamer said.

Nearly a decade ago, the Herlihys and Bitter sued Frankel after they began to suspect that the statements of their investments were bogus. At the time, Frankel was running his own investment service, the Frankel Fund, out of his parents' home in Toledo. The investors won a combined arbitration award of $950,000.

At about the same time, the Securities and Exchange Commission filed an enforcement action against Frankel. His mother delivered him by car to make a statement to SEC officials. In settling, Frankel gave up his trading license. Later, Frankel would use the Virgin Islands-based charity he created, the St. Francis of Assisi Foundation, to gain trust.

"He was this great guy who wanted to help the poor, help the homeless," said John Yednock, a Chicago insurance consultant hired to work with the foundation.

He mixed fabrications with truth, sometimes gratuitously. He told the SEC that one of his investors was "the deposed queen of Romania, and that she lived downstairs in his apartment in Palm Beach," Rothschild said.