Cancellation notices on life insurance policies that were supposed to be used to repay investors began to “pile up” in 1998 at the downtown Toledo offices of Liberte Capital Group LLC, the firm's former operations manager said yesterday.
Stacey Tate, testifying in the federal fraud and money-laundering trial of founder and managing director J. Richard Jamieson, said the firm received numerous notices from insurers canceling policies because of alleged misrepresentations in applications.
Ms. Tate handled negotiations with brokers representing people who tested positive for human immonodeficiency virus and other serious health conditions.
But she denied knowing that many people from whom the firm bought rights to collect policy death benefits obtained the coverage after their diagnoses and lied about health problems on applications.
Prosecutors allege that the fraud was a major factor in the collapse of Liberte Capital and the loss of $105 million invested by 2,900 people nationwide.
They contend Mr. Jamieson was aware of the fraud before he bought the policies and failed to warn investors.
Ms. Tate, who separately has pleaded guilty to mail-fraud charges in the matter, said she never examined information supplied to the firm that would have highlighted discrepancies.
That information included copies of insurance applications and patient medical records.
The discrepancies weren't among factors the firm considered when deciding to buy policies, she told jurors. And even after insurers began to cancel policies, Mr. Jamieson instituted no policy to check for fraud in applications, she said.
Ms. Tate also testified that her suspicions weren't aroused by people who sold the firm policies purchased from up to 15 separate insurance companies.
She said she and Mr. Jamieson never discussed the matter.
“It had no significance,” she testified. “It was nothing that was against the law that I knew of. There was nothing of consequence to discuss with Mr. Jamieson.”
Defense attorneys disputed prosecution contentions that insured people routinely lied on applications. Susan Bogart, an attorney representing Mr. Jamieson, showed the witness an application on which an HIV-positive individual truthfully answered that he didn't have acquired immune deficiency syndrome, or AIDS. Other policy applications also asked about AIDS but not if the individual tested positive for the precursor to the disease, she noted.
When insurers began to issue cancellation notices, Mr. Jamieson hired a lawyer to fight them, Ms. Tate said.
He took other steps to try to save investor funds, including placing their money in policies that remained in force, looking for a buyer for Liberte's policy portfolio, and buying policies from senior citizens while ending purchases from HIV-positive individuals, the witness said.
The trail, which began last week, will continue today before Judge David Katz.