When self-styled investment guru Marty Frankel hosted a reception for his clients a decade ago in Toledo, his guests toasted the fabulous returns he showed them on their portfolios that day.
His uncanny skill at predicting market trends was earning his clients more than 110 percent on their investments, several recalled.
Little did they know their money was not in the stock market, but was secretly used to fund one of the nation's largest insurance frauds.
Although Frankel is widely believed to have masterminded a $200 million crime spree years after he left his hometown and moved to Greenwich, Conn., prosecutors now say otherwise.
The seed money to start the scam came from the accounts of Jeep workers, Owens Illinois executives, and retirees from Toledo, according to federal documents in U.S. District Court in Connecticut.
The money enabled the former stockbroker to begin buying the first in a string of insurance companies in 1991 from which he drained millions of dollars in the ensuing years, records state.
“This is totally new to me. I had no idea my money was going for that,” said onetime client Dan Cole, a Toledo businessman. “I was always happy with the returns we were getting.”
The accusation is the latest twist in the bizarre story of the Toledo native who is scheduled to be arraigned tomorrow in federal court in New Haven, Conn., on charges of fleecing the cash reserves of six insurance companies under his control. The companies are now bankrupt with millions of dollars in losses and dozens of people losing their jobs.
If convicted of the most serious charges - racketeering and money laundering - he could spend the rest of his life in prison.
The former University of Toledo student was extradited to the United States on March 2 from Germany, where he was captured in a hotel room after an international manhunt in 1999.
Prosecutors charge that Frankel, 46, with the help of Sonia Howe, 41, who was his fiance, tapped into their clients' funds when they were overseeing a venture known as Creative Partners in Toledo starting in 1990, records state.
At the time, the couple was operating a stock brokerage at 4045 Talmadge Rd., across from Franklin Park Mall.
According to letters and company documents bearing their signatures, the two promoted Creative Partners as limited partnerships, allowing minimum investments of $10,000.
The money was to be invested in stocks, bonds, and other securities under a sophisticated - but secret - trading strategy devised by Frankel, according to promotional literature.
Between November, 1989, and September, 1991, the funds attracted $13 million from dozens of Toledo area residents, according to Wilbur Stevenson, a broker who helped promote the funds believing they were legitimate.
The clients were recruited through newspaper ads and Frankel's brochures, in which he boasted to be among the most successful money managers in the nation, but without offering proof.
Likening himself to legendary investor Warren Buffet, Frankel bragged he was one of the few money managers who predicted the stock market crash of 1987 and survived unscathed, he wrote to investors.
Clients say Ms. Howe, who has since been indicted in the scheme, worked out of the brokerage office while her fiance set up shop in the living room of a home he bought across the street from his parents on Stanhope Drive. In the room were quote machines and monitors, say his clients.
“That was his whole world,” Mr. Cole recalls. “He would sit in a big old chair and just stare at the screens.”
While Creative Partners boasted in a letter to clients in November, 1990, that their investments grew by 99.2 percent in one year, it's not clear where the money was invested.
Prosecutors charge that Frankel and Ms. Howe were actually siphoning money from Creative Partners in 1990 and wiring it to Swiss bank accounts under their control, according to indictment reports.
In an elaborate game, the couple was hosting cocktail receptions for their clients while secretly diverting their money to financial institutions in San Antonio, Texas, and New York City, and then overseas.
In late 1991, the couple made a move that changed the course of their lives and laid the foundation for an alleged crime spree that will be talked about for generations.
Prosecutors say the couple stole $3.7 million from their Toledo clients to buy the Franklin American Life Insurance Company in Tennessee, in October, 1991.
Frankel found the company through John Hackney, a former banker there who later was appointed company president, records state.
After buying the insurer, using the names of Ms. Howe and two other associates as the purchasers, Frankel struck gold: He was able to gain control of the company's cash reserves - $18 million.
Cash reserves are used to pay insurance claims and are owned by policy holders - not the company owners.
In order to cover his tracks in Toledo, he diverted $3.75 million from the insurance company cash reserves to pay back the Creative Partner accounts without anyone knowing.
In fact, he may have siphoned additional millions from the reserves to ensure the Toledo investors were repaid their original investments and spectacular returns of up to 200 percent, investors now surmise.
At the time of the payouts, many investors were pleased.
“I have said this before and I'll say it again: I'd follow that guy around like a puppy if he came back to Toledo,” declared Wally Powell, a fireman at DaimlerChrysler Toledo Jeep assembly plant.
Mr. Powell said he and a group of Jeep workers were never disappointed with their earnings. From an investment of $30,000, Mr. Powell said he was surprised to find his last check from Creative Partners was $110,000.
“Everyone was happy with this guy,” he said.
Mr. Cole's original investment doubled in the Creative Partners account, he said. Pat Nowak and her late husband, Casimer, a Jeep worker at the time, also realized phenomenal returns.
“I always wondered how he could make so much money” for his investors, said Mrs. Nowak. “I had some of my children's money and my money in [Creative Partners]. We had no complaints.''
Promotional material said Creative Partners grew in value every month since it began trading in November, 1989, earning 81.9 percent in the first 10 months of 1990.
But that would have been difficult for the times. For the period 1989 to 1993, stocks of large companies produced an average of 15 percent annually, and government bonds were paying 14 percent, according to Ibbotson Associates' yearbook of stocks, bonds, and inflation.
While the eccentric broker and his former fiance were “managing” the funds, they purchased a $74,000 Mercedes Benz from Vin Devers and bought the latest in sophisticated trading and quote machines, according to a broker who worked for the couple. Ms. Howe moved to an apartment in Ottawa Hills and Frankel bought his own home.
“He had better equipment than most brokerage offices did at the time,” said a now-retired broker, who asked not to be named.
Several investors were stunned to find out the couple abruptly closed Creative Partners in early 1992, writing fat checks for everyone before leaving town.
Ms. Howe moved to the San Jose, Calif., while Frankel moved to the other coast: Greenwich, Conn., where he rented a mansion.
Ms. Howe's former husband, John Schulte, said Ms. Howe left town with their two daughters, now 14 and 16.
“It was obvious to me they [Ms. Howe and Frankel] were living high off the hog - well above their means,” he said. Since his ex-wife was indicted, Mr. Schulte has filed for emergency custody of the children.
When Frankel left town, he was in trouble with the U.S. Securities and Exchange Commission in an unrelated case.
Three years earlier, he had been sued by two investors who claimed he diverted more than $300,000 to his own use when he worked for another brokerage firm. The case was settled and Frankel was stripped of his broker's license as a result.
Despite his problems, it didn't stop him from perpetrating an even larger scam, say prosecutors.
After leaving Toledo and acquiring his first insurance company, he proceeded to use the cash reserves to buy five more insurers in the coming years - tapping into those cash reserves as well.
In all, Frankel stole or diverted $200 million from the companies' reserves, buying two mansions for more than $5 million, as well as 33 luxury cars, two private jets, and $10 million in diamonds, reports state.
He hired personal drivers and chefs and a staff of security guards and computer experts.
His favorite activities were paying for girlfriends to visit him from as far away as Russia and Europe in a self-indulgent lifestyle that cost thousands of dollars a day, his former employees said.
To conceal the ongoing looting of the reserves, prosecutors say Frankel - with his former fiance acting as bookkeeper - falsified reports to state insurance officials from 1991 to 1999.
It all came to an end in May, 1999, when state regulators became suspicious and ordered Frankel to return $160 million. That's when he fled the country on a private jet with a bag of diamonds and two female companions.
So far, six of his associates have pleaded guilty, including Hackney, who was charged with federal racketeering and money laundering charges for his role in assisting his former boss.
As part of his plea, he has admitted to receiving more than $7.3 million from Frankel, including a $500,000 bonus to buy a new house.
Ms. Howe, considered by the FBI to be the No. 2 person in the entire scheme, was indicted on Jan. 31 on 14 counts of racketeering and money laundering.
She has pleaded not guilty, and was freed from jail on a $500,000 bond. A native of Elmore, she has been living in Charlotte, N.C., for the past two years with her daughters and second husband. She lost contact with Frankel after he fled the country.
As for the Toledo investors, some still marvel at the man who did magic with their savings 10 years ago.
But the question remains: Can they keep their profits if it's determined the money was stolen?
The U.S. attorney's office in New Haven, Conn., will not comment on its investigation, said spokeswoman Delcie Thibault.
But several legal experts say the amount of time that has transpired since the payouts and the exemptions to forfeiture laws make it nearly impossible for the government to collect anything.
“Unless they conspired with [Frankel and Howe] or had reason to believe the money was stolen, I would find it very, very unlikely they would have to give back any assets,” said Neal Sonnett, a Miami lawyer and former chairman of the American Bar Association's criminal bar committee.
Daniel Steinbock, a longtime criminal law professor at the University of Toledo, said statute of limitations on civil forfeiture proceedings also preclude any asset recovery “unless there's reason to believe they knew [of the illegal acts].''
Mr. Cole and other investors say they were surprised to learn of his massive fraud years later. “I don't think anyone had any idea of what he was doing,” he said.
He and others recall the cocktail reception Frankel and Ms. Howe hosted at a home in West Toledo in 1991. Jeep workers, Champion Spark Plug retirees, and Owens Illinois executives were among the guests.
“It was the only time I ever saw Marty dressed up,” said Mr. Cole. “It was an opportunity for people to meet this guy who was getting so much praise. He was far out, but he appeared to be smart.”
The fact that Toledo figures so prominently in one of the most publicized frauds of the past decade “is very sad,” said investor Nowak. “All of the people who invested with him were doing so to better their lives.”
While many investors expressed surprise at the Toledo connection to the Frankel scandal, at least two Toledo lawyers who investigated the ex-stockbroker in the early 1990s in the unrelated embezzlement case are not.
Stephen Rothschild and Jeff Creamer said they suspected Frankel was living off the residuals of his clients in 1991, and reported their concerns to the SEC.
“We knew about Creative Partners,” said Mr. Rothschild, “and we knew that when Marty left town, he wasn't penniless.”
First Published March 11, 2001, 10:49 a.m.
