Missing: One Man, Many Millions

By Karl Taro Greenfeld/Greenwich

At the end of a decade in which a bull market and initial public offering mania have made millionaires seem commonplace, we have a financial villain whose outsize chicanery and supersize embezzlement may be a match for our gaudy times. Martin Frankel, 44, a.k.a. David Rosse, a.k.a. Eric Stevens, accused of absconding with as much as $335 million through a bewildering web of insurance companies, bogus investment funds and phony charitable organizations, was, in his own charmingly inept manner, pursuing a twisted but very '90s version of the American Dream.

Few businessmen, straight or crooked, in any era have ridden that dream harder or farther than Frankel. By the time police and fire fighters responded to an alarm at his arcadian Greenwich, Conn., mansion last month to discover smoldering file cabinets full of incinerating and incriminating documents--item one on his to-do list: launder money--Frankel had constructed a financial whiz kid's Xanadu, complete with 80 trading terminals, satellite dishes, a fleet of imported cars and a bevy of female retainers he had attracted by answering personal ads and trolling the Internet. In his $3 million residence and the adjacent $2.6 million house, both paid for in cash, Frankel had accumulated all the trappings of a depraved mogul. But everything--the women, the houses, the computers, the jet and six-figure shopping sprees, even the riding crop and bondage videos--would turn out to be illicitly funded by an elegantly complex scheme reflective of Frankel's flawed brilliance and bizarre character. "He was the best I've ever seen," says Aubrey Harwell, a Nashville, Tenn., attorney investigating the case. "This will prove, over time, to be one of the greatest scams successfully perpetrated in history."

In a statement given to police during an investigation of a suicide on one of his properties two years ago, Frankel provided a glimpse into life on his estate: "The females are mostly my ex-girlfriends that I met through personal advertisements. I date a lot of women, and these girls are special to me." He went on to say he had "sexual contact" with some, but not all, of the women, and that they were not paid a salary but were given money "as they need it." Neighbors recall constant streams of limousines to and from Frankel's house at all hours. "Nobody knew who this guy was," says Phillip Russel, an attorney representing Frankel's neighbors, who are themselves financial-services professionals. "And if you spend that kind of money, then somebody knows who you are."

As a high school student in Toledo, Ohio, Frankel obsessed over financial markets. As an adult and college dropout, he fretted over the opportunities he perceived were passing him by. Of medium build, with brown hair and a diffident, stumbling, yet loquacious manner, Frankel came across as a possessor of arcane knowledge that would empower him and his clients. "He is the most inconspicuous guy you can imagine," says Jeff Creamer, a Toledo lawyer who represented two of Frankel's earliest victims. "That, coupled with what appears to be an Einstein-like devotion to the financial world, makes [people] think they have found a financial genius."

On the contrary. Frankel was a washout as a money manager, twice failing his brokers exam. And as a trader with LaSalle Street Securities, a Chicago firm, he proved too timid for the job--a surgeon afraid of sharp instruments. "I used to call him in the morning and say, 'Marty, make the trade!'" recalls Ted Bitter, a former client of Frankel's. "I would call him back in the afternoon, and he wouldn't have done it." His own fund, the Frankel Fund, attracted a total of three investors and the attention of the Securities and Exchange Commission when Frankel revealed a prodigious inability to distinguish his own money from his clients'. After the SEC got wind of his next venture, Creative Limited Partners, Frankel was barred from trading securities (presuming he could pull the trigger) on behalf of investors.

If Frankel learned a lesson from his failed funds, it was that clients insist on getting their money back. He needed to find clients who wouldn't be so demanding. Even better, if he could somehow become both client and money manager, he could create a truly sustainable scam. That's when the insurance companies entered the picture.

Assuming a new identity, Eric Stevens, and taking up with Sonia Schulte, the wife of his former boss at LaSalle Street, Frankel heard about a troubled Tennessee insurance company, Franklin American Life. In 1991, with money remaining from his derelict investment funds and a few dubious letters of credit, he founded Thunor Trust as a vehicle to take over Franklin. Thunor was run by two Nashville businessmen, who also claim to be victims. Frankel then used Franklin American's assets to purchase at least 10 other insurance companies throughout the South and Midwest. Laxly regulated insurance companies such as Franklin American, which mostly sold burial policies, are perfect targets for scam artists: they collect regular cash premiums that are supposed to be prudently invested and are paid out only as policies come due. Instead the premiums were invested in Liberty National, a trading firm Frankel set up and controlled.

From Liberty National he issued statements that helped assure insurance-company trustees that they were receiving fantastic returns on U.S. Treasury bonds. Meanwhile, he funneled the money, as much as $915 million, through a series of foreign bank accounts and a tangled web of entities still being sorted out by federal investigators.

But how was it that the bumbling, barred-by-the-SEC Frankel was able to take control of insurance companies, particularly when he had virtually no assets? Oklahoma insurance commissioner Carrol Fisher is as surprised as anyone. "I don't know how in the world this could have happened," she said. "To imagine how one person could have got hold of this much money is beyond me."

Having baked a layer cake of fraud, Frankel sought to add some icing by establishing a charitable trust with connections to the Vatican--the ultimate cover. Through a prominent New York City attorney, Thomas Bolan, Frankel met with Father Peter Jacobs, a gadabout clergyman who has ties to New York luminaries, including Walter Cronkite. Jacobs introduced Frankel to Monsignor Emilio Colagiovanni, a Vatican official. Frankel claimed that his St. Francis of Assisi Foundation would distribute more than $2 billion to Catholic charities. He took to obsessively studying the lives of the saints, almost as avidly as he consulted astrological charts. He got the monsignor's blessing--and the use of a Vatican bank account controlled by Colagiovanni.

While his ultimate aspirations for the St. Francis Foundation are not clear, the fund was his scam's undoing. State regulators balked when the Virgin Islands-registered Foundation sought to take over U.S. insurance companies. But by early May, when Mississippi and Tennessee regulators began seeking the return of assets from Frankel's Liberty National, Frankel was gone, leaving behind, among other things, a half-million-dollar charge for jet fuel on his credit card. At his house, FBI agents recovered astrological charts intended to answer, among other questions, "Will I go to jail?"

For now, no. Frankel remains at large. He is presumably the only person who knows the whereabouts of the missing $335 million. As the cops discovered, he's an information junkie. And it's likely that somewhere among the burned papers and the many computers, they'll find his research on countries that have loose banking laws, nice beaches or mountains--and no extradition treaties with the U.S.

--With reporting by William Dowell/New York and Elisabeth Kauffman/Nashville

With reporting by William Dowell/New York and Elisabeth Kauffman/Nashville