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TRANS WORLD PAYS COMMISSION ADVANCES

Joseph J. Warren was the president of the Trans World Life Insurance Company of New York. In a June 19, 1972 Subcommittee affidavit, Warren said he wrote checks to advance or loan-money equal to the size of the commissions for the agents on the Local 295 life insurance policies.50

From September 22, 1971 to November 30, 1971, Warren wrote seven checks totalling $140,000 payable to the Viscount Agency, Inc. 57

Warren wrote six more checks, totalling $320,000, from December 1, 1971 to January 10, 1972 payable to the Dina Gelman Agency.58 The total commissions on the second tier of insurance, then, came to $460,000. The Subcommittee obtained photostatic copies of these checks.

HENRY BROWN CASHES CHECKS FOR OSTRER

Henry Brown, a New York City broker, had the financial resources to cash large checks for Louis Ostrer and for persons who were associated with Ostrer. Brown described these transactions in four affidavits he gave the Subcommittee December 9, 1971, June 16, 1972, July 28, 1972 and September 8, 1972.59

Brown said he had known Ostrer for 15 years, trusted him and had cashed checks worth $1 million for him since 1968. Brown said Ostrer owed him $260,000 but he was confident he would be paid back.

Until Ostrer "got in trouble" with Canada Life Assurance Company, Brown said, Ostrer was "an outstanding insurance salesman." But when he lost his license, Ostrer became "associated with" or employed Dina Gelman, Seymour Greenfield, Cy Reeves Snyder and William Kilroy and such businesses as Fringe Programs, Viscount Agency, Modern Agency, Sutter Agency, Cy Reeves Snyder Agency and Dina Gelman Agency.

Brown said:

Because I keep no records, I cannot recall the details of specific transactions I have had with Mr. Ostrer. However, in general, Mr. Ostrer or Mr. Seymour Greenfield would contact me concerning the cashing of a check they had in their possession or the advancing of funds on a check which they expected to receive in the near future. I would cash the check in question or advance the money on the expected check, giving the money to Mr. Ostrer or Mr. Greenfield or one of their associates-either a Mr. William Kilroy, Mr. William Felner or Mr.

56 Affidavit of Joseph J. Warren, June 19, 1972 (See Appendix XVI.)

57 Check No. 20522, dated September 22, 1971, drawn on the account of the Trans World Life Insurance Company, payable to Viscount Agency, Inc., in the amount of $25,000; Check No. 20523, dated September 22, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $25,000; Check No. 20919, dated October 8, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $15,000; Check No. 20920, dated October 8, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $15,000; Check No. 21145 dated October 18, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $20,000; Check No. 22152, dated November 29, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $10,000; and Check No. 22169, dated November 30, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $30,000. (See Appendix XVII.)

Check No. 22191, dated December 1, 1971, drawn on the account of Trans World Life Insurance Company payable to Dina Gelman Agency, in the amount of $100,000; Check No. 22253, dated December 3, 1971, drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $60,000; Check No. 22709, dated December 17, 1971, drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $40,000; Check No. 22969, dated January 4, 1972, drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $30,000; Check No. 23072, dated January 6, 1972, drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $70,000; and Check No. 23144, dated January 10, 1972, drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $20,000. (See Appendix XVIII.)

59 Separate affidavits of Henry Brown, dated December 9, 1971; June 16, 1972; July 28, 1972; and September 8, 1972. (See Appendix XIX.)

Sonny Ratoff, who is my nephew. However, I would only cash checks or advance money at either Mr. Ostrer's or Mr. Greenfield's direction. For these services I would charge only a nominal fee-such as $50 or $100 depending upon the amount of the check.60

While he kept no records and could not recall every check he had cashed for Ostrer, Brown did remember circumstances surrounding some of the checks when Subcommittee investigators showed him photostatic copies.

For example, Brown remembered cashing a January 25, 1971 check from Executive Life Insurance Company payable to Čy R. Snyder for $50,000. But, Brown said, it wasn't Cy R. Snyder who cashed it. "I cashed this check for either Mr. Ostrer or Mr. Greenfield and deposited the check in my account," Brown said, adding:

I did not give the cash to Mr. Cy Reeves Snyder, the payee of the check. From previous conversation I had with Mr. Snyder, however, I know he approved of the transactions. In fact, he told me that Messrs. Ostrer or Greenfield had a power of attorney to use his signature.61

Another January 25, 1971 Executive Life check payable to Snyderthis one for $35,000-was cashed by Brown. He said he remembered giving the money to Ostrer or Greenfield or one of their associates, and, again, Snyder approved of the transaction.62

Brown said one check-a $25,000 cashier's check drawn January 27, 1971 by the Kings Lafayette Bank-was payable to Henry Brown. Brown explained:

Mr. Ostrer or Mr. Greenfield contacted me concerning the cashing of this check. Mr. Michael McEnroe signed this check on behalf of the Kings Lafayette Bank. At Ostrer's or Greenfield's direction, I cashed the check, giving the money to them or one of their associates.63

THE KINGS LAFAYETTE BANK CHECK IS EXPLAINED

The Kings Lafayette Bank, 200 Montague Street, Brooklyn, New York, was the site of a meeting December 30, 1970. The subject of the meeting was the severance fund-life insurance program of Local 295. In attendance were Louis Ostrer, Seymour Greenfield and several bank officials including Milton Vanderveer, the chairman of the board of the bank, and Tum Sudin, Richard Arkwright and Michael McEnroe, all vice presidents.

McEnroe discussed the meeting and subsequent events related to it in a July 14, 1972 Subcommittee affidavit.64

He recalled that Ostrer described the severance trust fund to the bank officers. Ostrer said certain trust fund deposits would be made in the bank as part of its investments portfolio.

"It was apparent from the beginning that Ostrer was in charge," McEnroe added, concluding his recollection of the meeting.

Shortly thereafter-on January 6, 1971-McEnroe said, an account for the Modern Agency, Inc., was opened and Seymour Greenfield, secretary of the firm, was authorized to be its sole signator. On January 27, 1971, Greenfield opened a personal account, again with himself the sole signator.66

Henry Brown affidavit, June 16, 1973.
Thid.

52 Ibid.

Henry Brown affidavit, September 8, 1972.

"Affidavit of Michael McEnroe, July 14, 1972. (See Appendix XX.)

Statement of Kings Lafayette Bank, New York, in which Seymour Greenfield was certified as secretary of the Modern Agency, Inc., and its sole signator. (See Appendix XXI.)

Statement of Kings Lafayette Bank in which Seymour Greenfield of Viscount Agency opened a personal checking account. (See Appendix XXII.)

Greenfield took part in another transaction at the bank January 27. He and Louis Ostrer and a third man McEnroe did not know asked him to cash a $150,000 check from the Executive Life Insurance Company. The check was payable to the Cy R. Snyder Agency and had already been endorsed, McEnroe said. Greenfield then countersigned for it for the Modern Agency, Inc., McEnroe said.67

McEnroe said the bank didn't have sufficient cash on hand so he gave them what he could-$60,000 in bills, some of them as large as $100 denominations. McEnroe said Ostrer and Greenfield "promptly stuffed [the cash] into their pockets."

Next, McEnroe said, Ostrer asked for three cashier's checks for $25,000 each to be drawn, one made out to Greenfield, one to Dina Gelman, the third to Henry Brown.68 The remaining $15,000 was deposited in the Modern Agency's account, McEnroe said.

Thus, Michael McEnroe explained how it was that Louis Ostrer got Henry Brown to cash a $25,000 check payable to Henry Brown.

Sometime after the January 27 encounter McEnroe read a magazine article about cargo thefts at the John F. Kennedy International Airport. The article portrayed Local 295, Louis Ostrer and Anthony (Hickey) DiLorenzo in a not very favorable light.

McEnroe said he brought the article to the attention of the bank president, John DePalma, who ordered that Greenfield's Modern Agency account and his personal account be closed out.69

On February 22, McEnroe told Greenfield that his accounts were to be closed. "Greenfield did not object," McEnroe said, "nor did he seem too upset . . ."

THIRD YEAR ADVANCES ARE RETURNED

The Trans World Life Insurance Company paid advance commissions of $75,000 to Mrs. Gelman for the start of the third year of insurance under the Local 295 plan. Payment was made by a $50,000 check January 14, 1972 and a $25,000 check January 27, 1972.70

On April 24, 1972, Joseph J. Warren, president of Trans World, asked Mrs. Gelman to return the money because the severance fund trustees had not yet ratified the additional coverage." Mrs. Gelman returned the money.72

67 Check No. 6946, dated January 25, 1971, drawn on the account of the Executive Life Insurance Company of New York, payable to Cy R. Snyder Agency, in the amount of $150,000. (See Appendix XXIII.)

63 Cashier's check No. 103-001916, dated January 27, 1971, drawn by Michael McEnroe, payable to S. Greenfield, in the amount of $25,000; cashier's check No. 103-001917, dated January 27, 1971, drawn by Michael McEnroe, payable to D. Gelman, in the amount of $25,000; and Check No. 103-001918, dated January 27, 1971, drawn by Michael McEnroe, payable to H. Brown. (See Appendix XXIV.)

Separate Kings Lafayette Bank statements closing out the account of the Modern Agency, Inc., care of Seymour Green field; and the personal account of Seymour Greenfield, both closings dated February 22, 1971. (See Appendix XXV.)

70 Check No. 23345, dated January 14, 1972, drawn on the account of Trans World Life Insurance Company, payable to Dina Gelman Agency, in the amount of $50,000; and Check No. 23709, dated January 27, 1972, drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $25,000. (See Appendix XXVI.)

71 Letter of April 24, 1972 from Joseph J. Warren to Dina Gelman. (See Appendix XXVII.)

72 Check No. 124, dated April 26, 1972, drawn on the account of Dina Gelman Agency, payable to Trans World Life, in the amount of $25,000; and Check No. 125, dated April 26, 1972, drawn on the account of Dina Gelman, payable to Trans World Life, in the amount of $50,000. (See Appendix XXVIII.)

VI. EVALUATIONS OF THE SEVERANCE PAY-INSURANCE PLAN

SUBCOMMITTEE ASKS ACTUARIES TO EXAMINE FUND

In May of 1971, at the request of the Senate Permanent Subcommittee on Investigations, three insurance experts examined the procedures and policies of the Local 295 severance trust fund and its life insurance benefit.

The insurance experts were Lawrence M. Hyman, supervising examiner of the State of New York Insurance Department; George Perla, senior examiner of the Department; and Herbert L. Feay, Assistant Director of the United States General Accounting Office.

On June 30, 1971, the conclusions of these men were given to the Investigations Subcommittee.73 The three insurance experts were critical of the life insurance features of the severance fund.

They said the insurance coverage aspects of the fund were incomplete in describing procedures and benefits.74

They said the agent writing the coverage would benefit excessively from the high commission rates of the fund. They said that one of the agent's commissions-the persistency bonus-was probably illegal in the State of New York.75

The three insurance experts estimated that agent commissions would total $1 million in the first three years of the plan. They contrasted the million dollar commission fee of the Ostrer system with the $75,250 commissions due on a comparable group plan set up in accordance with the Code of Ethical Practices of the National Association of Insurance Commissioners.76

The insurance experts were also critical of the insurance for being designed "without regard to the individual needs of each member." People's insurance requirements change as their lives change, they said, and their insurance coverage should be responsive to new situations. But instead of responding to worker's needs, the insurance experts said, the Ostrer policy was structured according to the "apparent desire to pay the maximum amount possible as life insurance premiums on which the agent will collect commissions." "7

NEW YORK INSURANCE DEPARTMENT EXAMINES FUND

On September 8, 1972, the State of New York Insurance Department completed a study entitled "Report on Examination of the Local 295 Severance Trust Fund." The report was forwarded to the Subcommittee on October 18, 1972.78

78 Letter of June 30, 1971 from Lawrence M. Hyman and George Perla to Robert E. Dunne, transmitting the report of the actuaries on the Local 295 Severance Trust Fund to the Senate Permanent Subcommittee on Investigations. (See Footnote 39.)

74 Ibid.

75 Ibid.

76 Ibid. 77 Ibid.

78 New York State Insurance Department Report on Local 295 Severance Trust Fund. (See footnote 55.)

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Prepared by Department examiner Murray Zaroff, the report was critical of the severance trust fund, particularly its life insurance provisions.

Excessive commissions to the agent were sharply questioned as the report asserted:

The scale of payments to the insurance agent is unconscionably high and in the gross contravention of the Code of Ethical Practices.79

The report added:

If commission has been made payable not at the unbelievably high rates currently in effect but at the range of rates contemplated in the Code of Ethical Practices, the savings in commissions would have been of great financial benefit to the trust fund. Such savings could have been passed on [to] the fund in the form of lower premiums or the contracts could have been rewritten on a participating basis so the fund could receive the savings as dividends. 80

New York's Insurance Department charged that Louis Ostrer had deliberately misled the severance trust fund trustees and termed "seriously questionable" the use of ordinary whole life insurance instead of implementing a group plan.81

Fringe Programs, Inc., the administrator of the severance fund, came under fire for the excessively high fees it charged. The New York State Insurance Department noted that Fringe was paid first year administrator's fees of $86,877. This figure was contrasted with an avowal made by Louis Ostrer January 21, 1971 in a meeting of the trustees that annual administrator's fees would be 94 cents per member per month-or $15,000.s2

It was further asserted that, as of July 1, 1972, overall administrative charges-$124,077-were four and one-half times higher than those of the average fund of similar size. 83

The Insurance Department report cited another item in the overall cost of managing the fund-the legal fees-which seemed to be too high. The severance fund had paid $18,000 to two lawyers-Haskell Wolf and Herbert Simon-and the report observed that the "fund's high administrative costs" could be reduced by $9,000 by retaining only one attorney, rather than two.84

Finally, the Insurance Department referred to its own previous announcement-of December 22, 1967-when it revoked Louis Ostrer's license as an insurance agent. The Department asserted that Ostrer had, in fact, solicited the insurance arrangement with Local 295 at a time when he was not licensed as an agent by the State of New York. 85

THE GAO STUDIES FUND

The Senate Permanent Subcommittee on Investigations on December 28, 1971 asked the United States General Accounting Office (GAO) to examine the severance pay-life insurance plan of Local 295. The GAO submitted its report to the Subcommittee May 21,

1973.86

Like the New York State Insurance Department report, the GAO study was critical of the high commission rates and the decision to have individual policies rather than a comprehensive group plan.

79 Ibid. 80 Ibid.

81 Ibid.

82 Ibid.

$3 Ibid.

84 Ibid.

85 Ibid.

* GAO study of Local 295 Severance Trust Fund. (See Footnote 37.)

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