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above the name of the payee company the following: "Louis C. Ostrer Associates, agents for”. Thereafter, said respondent endorsed the checks and converted and/or misappropriated the proceeds of said checks to his own use and benefit. He also failed to remit to the company such funds representing deposits for future premiums. To date, respondent has not accounted for or returned such future premiums collected as outlined herein.

4. Prior to the period hereinabove mentioned, respondent Samuel Scheinhaus was secretary and sublicensee of Louis C. Ostrer Associates, Inc., as an accommodation officer, having resigned such office in December 1963. He neglected to inform this Department of such resignation and to surrender his sublicense at that time.

5. On or about February 27, 1967 respondent Louis C. Ostrer as sublicensee of Executive Affiliates, Inc., then a corporate agent of the company, and in pursuance of another plan or scheme to improperly divert and/or misappropriate funds, obtained or had printed for such purpose, letterhead stationery of Allmetal. On or about February 27, 1967, March 8, 1967 and April 4, 1967 he prepared and produced letters on such stationery of Allmetal addressed to Executive Affiliates, Inc., requesting refund of deposits made, as outlined hereinabove, and respondent Louis C. Ostrer signed such letters with the name of an officer of Allmetal. Said letters were subsequently forwarded by Louis C. Ostrer to the company with a request from him that the company honor the demand for refunds. During the period from March 2, to April 6, 1967, the company forwarded to said respondent for delivery to payees as mentioned herein, 12 checks totalling the amount of $359,639.86 payable to_Allmetal and the Franklin National Bank or Allmetal and the Long Island Trust Company. Upon receipt of the aforesaid checks, respondent Louis C. Ostrer, without authorization, endorsed the names of the payees thereto, and then negotiated said checks to the Midtown Commercial Corp., and thereupon converted and/or misappropriated the proceeds thereof to his own use and benefit.

6. Respondent Seymour Greenfield was treasurer and sublicensee of Executive Affiliates, Inc., as an accommodation officer thereof.

CONCLUSIONS The evidence clearly establishes that respondent Louis C. Ostrer pursued the herein described plans or schemes and misappropriated the funds mentioned therein. Accordingly, I conclude that he has demonstrated his untrustworthiness to act as an insurance agent within the contemplation of the Insurance Law, and has violated Section 125 of the Insurance Law and Departmental Regulation No. 29.

With respect to respondents Samuel Scheinhaus and Seymour Greenfield, there is no evidence indicating that they knew of or participated in the aforesaid fraudulent schemes. I, therefore, find that they were not personally at fault, directly or indirectly, in the matters on account of wbich licenses are being herein revoked.

DECISION

Therefore, pursuant to the provisions of Sections 117 and 119 of the Insurance Law, it is

Ordered, That the charges and specifications against respondents Samuel Scheinhaus and Seymour Greenfield be and the same are hereby dismissed, and it is

Further ordered, That all licenses issued by this Department to respondent Louis C. Ostrer be and the same are bereby revoked, and that all pending applications for licenses be and the same are hereby denied, and it is

Further ordered, That such revocation of licenses and denial of applications shall take effect ten days after the mailing of a copy of this decision to respondent Louis C. Ostrer, by registered mail. Dated: New York, N.Y., October 4, 1967.

ALBERT J. MILLUS,

Deputy Superintendent of Insurance. Richard E. Stewart, Superintendent of Insurance, pursuant to the authority vested in him under the New York Insurance Law, hereby approves and adopts the determination hereinabove made. Dated: New York, N.Y., October 4, 1967.

Richard E. STEWART, Superintendent of Insurance.

STATE OF New YORK INSURANCE DEPARTMENT,

New York, N.Y., December 22, 1967. Licenses held by Louis C. Ostrer, a Manhattan insurance agent, charged with improperly diverting more than $700,000 from a Canadian life insurance company, have been revoked in an order issued by the New York State Insurance Department.

Ostrer, an agent for Canada Life Assurance Company but not an employee of that company, was also the sublicensee of SMB Agency, Inc. and of The Homer Agency, Inc. both of 377 Fifth Ave., New York City. The licenses of both agencies also were revoked.

The revocation order results from an Insurance Department hearing, at which it was established that Ostrer had demonstrated his untrustworthiness to act as an insurance agent within the intent of the Insurance Law.

The Department charged that Ostrer altered checks made out to Canada Life Assurance Company for $379,341 by inserting "Louis C. Ostrer, Associates, agents for" above the name of the Canadian insurer, cashed the checks and kept the proceeds. The checks had been forwarded to him from Allmetal Screw Products Co., Inc. as deposits for future premiums on life insurance policies.

The Department also found that Ostrer had used purported letterhead stationery of Allmetal, without its permission, to obtain refunds of premiums held on deposit by Canada Life Assurance Company. Through letters purportedly signed by officers of Allmetal, but in fact signed by Ostrer on the corporation's stationery, he obtained 12 checks totalling $359,639 payable to Allmetal from the insurance company. He endorsed the checks without authorization and kept the proceeds.

Ostrer, who resides at 181 Kings Point Road, Kings Point, N.Y., was licensed individually as an insurance agent under Section 113 of the Insurance Law, and as sublicensee of SMB Agency, Inc., and of The Homer Agency, Inc., corporate agents. The Insurance Department has also denied all Ostrer's applications for licenses.

He has been indicted for grand larceny and forgery by the New York County Grand Jury.

APPENDIX VIII
STATE OF NEW YORK INSURANCE DEPARTMENT,

WELFARE FUND BUREAU,

New York, N.Y., September 8, 1972. REPORT ON EXAMINATION OF THE LOCAL 295 SEVERANCE TRUST AS OF JUNE 30,

1971
Hon. BENJAMIN R. SCHENCK,
Superintendent of Insurance,
Albany, N.Y.

Şır: In accordance with Appointment Number WB 3085 dated May 23, 1972, I have made an examination as of June 30, 1971 of the Local 295 Severance Trust Fund, 179–30 149th Avenue, Jamaica, New York, 11434.

ADMINISTRATION The fund is administered by ten trustees, five representing the union and five representing the employers. Trustees serving as of June 30, 1971 were:

Union trustees: James Costa, James Hallahan, Michael Hunt, John Moran, and Tom Sweeney.

Employer trustees: Frank Della Pelle, William Ermer, Martin Hoffenberg, Frank Labell, and Rubin Steiner.

Professional services are provided by the following:

Finkelstein, Goldstein & Rick, CPA's (Accounting), 570 17th Avenue, New York, N.Y.

Herbert Simon (Legal), 99 West Hawthorne Avenue, Valley Stream, N.Y.
Haskell Wolf (Legal), 150–36 182nd Street, Jamaica, N.Y.
Fringe Programs, Inc., (administrator) 377 5th Avenue, New York, N.Y.

Fidelity bond.-The fund has a $350,000 commercial blanket bond covering all trustees and employees.

MEMBER BENEFITS

Pursuant to collective bargaining agreements effective December 1, 1970 between Local Union 295 and various employers, the employers agreed to con

IT

tribute to the Local 295 Severance Trust Fund. The amounts of contributions required under the agreement are $15 for the first year of the contract, $30 for the second year and $40 for the third year for each week in which the employee appears on the employer's payroll.

A separate account is maintained for each member showing the employer payments made for him.

Benefits consist of a cash settlement upon termination of employment and a death benefit.

Following are comments on the plan and its administration:

(Plan provisions have been applied erroneously, resulting in overpayments to terminated members in substantial amounts.}

Section 3.06 of the plan states:

In the event of termination of employment of a Member other than by death, he shall be entitled to the following benefits:

(a) If the terminated Member was a Member of the Plan on December 1, 1970, he shall be entitled to the amount standing to his share account as of the date of determination as computed in Section 4.04.

(b) If the terminated Member entered the Plan after December 1, 1970, he shall be entitled to the following benefits:

Period of Membership in the Severance Plan of a Member entitled to Severance Benefits and Employer contributions credited to the Member's account:

At least (1) year, but less than two (2) years: 20 percent.
At least two (2) years, but less than three (3) years: 40 percent.
At least three (3) years, but less than four (4) years: 60 percent.
At least four (4) years, but less than five (5) years: 80 percent.

At least five (5) full years: 100 percent.
Section 4.04 of the plan states:

The Member's account in the Severance Plan as of the last evaluation date shall consist of an aggregate of the following:

(a) The total Employer contributions to the Trust Fund on his behalf, less;

(b) The allocated share of charges against the Trust Fund on account of necessary cost, fees and other expenses, if any, incurred in connection with the establishment and administration of the Severance Plan, less;

(c) The insurance premiums paid on Contracts issued on the life of such member, plus;

(d) The increment or decrement credited to his account from his entrance into the Severance Plan up to the last evaluation date. Increment or decrement shall be annually credited to each account in the same proportion as

the money in each individual account is to the total fund of all accounts. In accordance with the plan it appears that the cash benefit upon terminations of employment should equal the total contributions made on behalf of the member less his allocated share of administrative charges, less the premiums paid by the fund on the insurance contract obtained on his life plus any increments or decrements credited to his account.

While the plan does not so specifically provide, equity and logic would seem to dictate that a terminated member should recieve the insurance policy on his life, in addition to the cash benefit.

In actual practice the trustees have paid cash benefits, to inception members who terminated employment, equal to the total contributions made on their behalf.

This apparent misapplication of the rules has resulted in substantial overpayments to terminated members.

(Members have not consented in writing to insurance coverage on their lives.]

The amount of coverage on the life of a member, obtained by the fund, varies in accordance with the age of the member. The formula for determining the face amount of insurance is as follows: subtract the member's age at the age of issue of the policy from 65 and multiply the result by $750. Inception members were covered for insurance immediately.

In accordance with the plan, new members are covered for insurance on the first quarterly enrollment date following six months of employment with a contributing employer.

Upon termination of employment the fund pays an additional two months premium to continue coverage. In addition there is a 30 day grace period which extends the insurance for a period of three months after termination.

Members who are less than 55 years of age at the time of issue of the policy are covered for a waiver of premium benefit. If a member becomes totally and

2 Members terminated by other than death.

permanently disabled while insured before age 60 the life insurance will remain in force as long as he remains so disabled without payment of further premiums.

The insurance companies, Executive Life Insurance Company of New York and the Trans World Life Insurance Company of New York are issuing ordinary non-participating whole life insurance on the lives of the members on a guaranteed issue basis.

It is noted that the insured members did not make application for this coverage or give consent in writing therefor, Section 146 (3) of the New York Insurance Law requires such application and permission.

[There are no written formal agreements between the fund and the insurance carriers setting forth eligibility for coverage.]

There are no written formal agreements between the fund and the insurance carriers, whereby the carriers agree to provide the insurance coverage in accordance with the fund's plan.

However, the carrier has refused to pay claims if the member did not meet the fund's eligibility requirements even though the carrier issued a whole life contract on the member and accepted premium payments.

The aforesaid action by the carrier appears to violate Section 142 of the New York Insurance Law.

[Death benefits have been overpaid because of failure to carry out plan provisions.]

Section 3.12 of the plan states:

"In the event of the death of a Member prior to termination of employment, there shall be payable as a death benefit to his beneficiary, if designated, or to his estate if no beneficiary has been designated the proceeds of any Contracts issued upon his life plus the amount credited to such deceased Member's account as of the date of his death.

“For the purpose of this Section the 'amount credited to a Member's account' shall mean the amount the Employer has contributed for such Member plus increment or decrement credited to such amount as of the last evaluation date prior to the Member's death, less such Member's allocated share of charges against the Trust Fund and less insurance premiums paid for Contracts on the life of such Member."

In actual practice the trustees have paid to the beneficiaries of deceased members the total contributions made on their behalf in addition to the life insurance benefit received by the fund from the carrier.

(The trustees, contrary to the Plan and with questionable legality, withhold a part of the insurance proceeds upon death of a member.]

Section 3.17 of the plan states:

"*** Payment of the proceeds of Contracts issued on his life as a death benefit shall be made in equal monthly, quarterly, semi-annual or annual installments, in the sole discretion of the Trustees, over a period of ten (10) years after the death of a Member who died on or prior to his fifty-fifth (55th) birthday, or over a period of five (5) years after the death of a Member who died after his fifty-fifth (55th) birthday, provided that the amount of each such payment is at least Twenty-Five ($25.00) Dollars."

A beneficiary electing to receive the death benefit in a single sum payment, receives the commuted value. The commuted value is calculated on a 6% interest factor and is 73.6% and 84.2% of the face amount for a ten and five year payout respectively.

The trustees, by paying an amount equal to the face value of the insurance to the fund beneficiary over a period of time without interest, and by retaining a part of such face value when paying the fund beneficiary a lump sum, have acted contrary to the plan.

Section 146 (1) of the New York Insurance Law provides in part as follows:

"No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits | under such contract are payable to the person insured or his personal representatives, or to a person having, at the time when such contract is made, an insurable interest in the person insured.”

Your examiner questions whether the above described fund actions are in accordance with the quoted law.

The proceeds of life insurance, retained by the fund on the death of members, should be paid to the members' designated fund beneficiaries.

Apparently, even the designated beneficiaries of those members who are terminated prior to death and have acknowledged ownership of their policies are denied the full proceeds of their policies. In the case of John Cerrito, who termi

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nated on July 2, 1971 and who died on September 4, 1971, the fund paid his beneficiary the commuted value of the policy, $7,728.09 instead of the face amount, $10,500. Even though Mr. Cerrito had been advised on May 10, 1971 by Fringe Programs, Inc. that "coverage will be turned over to your ownership.”

(In other respects, the administration of the plan has been unsatisfactory.) Section 2.04 of the fund's plan reads as follows: "In the event of termination of Membership hereunder of a Member for any reason whatsoever and his subsequent entry into this Severance Plan, he shall be considered a new Member and shall not be entitled to any additional benefits as a result of his previous membership in this Severance Plan. The purpose of this provision is to avoid duplication of benefits.”

In one instance an inception member, Michael Quirk was permanently laid off by a participating employer and the member received severance benefits of $795.00. On May 31, 1972 the administrator, Fringe Programs, Inc. granted this member the option of returning his cash benefit and reentering the plan as an inception member when he was reemployed by a contributing employer.

It appears that the amount of insurance actually purchased for some members is not in accordance with the plan. Section 3.10 of the plan reads as follows:

"Notwithstanding any other provision in this Severance Plan to the contrary, the purchase by the Trustees of a Contract or Contracts on the life of each Member shall be so limited that the aggregate of the premiums for ordinary life insurance in the case of each Member shall be not more than forty-nine and nine-tenths (49.9%) percent of the aggregate of the contributions allocated to such Member at the particular time or as may be required by the appropriate statute."

In reviewing the individual members' accounts, numerous cases were found where the premiums exceeded 49.9 percent of contributions. This results from the fact that the amount of insurance is purchased for each member on the basis that he will work a full 52 weeks during the year, when in certain instances this does not occur.

The plan and the trust agreement appear to be in conflict on the point of providing members with an annuity benefit. The trust agreement under Section 7.3 states:

"no pension or annuity benefit may be provided for or paid to any Employee under this Agreement.”

The plan under Section 3.01 states:

"Any member who has reached his sixty-fifth (65) birthday shall be eligible for an annuity type benefit established by the Trustees. * * *?

The insurance arrangement was in actual fact solicited by Louis Ostrer, who had lost his New York agent's license for misconduct.)

Louis C. Ostrer solicited the insurance arrangement although he is not licensed as an agent by the New York State Insurance Department, nor is he registered with this Department as an insurance consultant. Attached to this report is a release issued by the New York State Insurance Department dated December 22, 1967, which indicates Mr. Ostrer's licenses had been revoked for improperly diverting more than $700,000 from a Canadian life insurance company.

It is noted that copies of this release were presented to the trustees at a meeting held at the Department's office on August 24, 1971. Representing the fund at the meeting were trustees Steiner and Hunt and fund counsel Herbert Simon, The minutes of the trustees' meeting of November 17, 1971 indicate that this information was circulated to all the trustees.

Mr. Ostrer attended all the trustees' meetings and attended the membership meeting held on December 6, 1970 at which the members ratified the plan. Mr. Ostrer's sister, Dina Gelman, a licensed insurance agent has been designated as both general and soliciting agent to receive commissions. Dina Gelman has not once attended a trustees' meeting.

Dina Gelman is also the sole stockholder of Fringe Programs, Inc., the administrator of the plan. For the first two years of the plan's operation which will end at December 1, 1972, Dina Gelman will have received approximately $762,500.00 in commissions and $160,000 in administration fees for a total of approximately $922,500.00. This figure represents approximately 30% of the total contributions which will have been made by all employers on behalf of all covered employees for the two year period.

[Presentation by Louis C. Ostrer to the trustees was misleading.) At the July 15, 1971 meeting of the trustees Mr. Ostrer presented the following memorandum comparing term insurance to ordinary life:

FRINGE PROGRAMS INC.,

New York, N.Y.

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