It’s probably a bad sign if you’re a Rhode Island lawyer who’s the subject of two page-one Wall Street Journal articles in three weeks.
And so it is here. The paper got a two-fer on Joseph Caramadre, who makes money taking advantage of loopholes with dying people. Last month, the Journal reported that Caramadre paid terminally ill people to “serve as paid fronts for purchases of the product, variable annuities,” and put “tens of millions of dollars into the policies, hoping to reap a profit when the recruits died.”
Basically the scheme involved taking advantage of annuity policies that guarantee you get the money you invested back:
If stocks rose while the person was still alive, the investor did well. If they fell, the investor got a full refund, leaving the insurer on the hook for the loss. Meanwhile, a broker—in some cases a partner in Mr. Caramadre’s firm—would collect a share of a commission of as much as 7.5% of the invested amount, paid by the insurer.
The paper had some good reporting on how he does business:
Among those who responded to Mr. Caramadre’s offer was Sandra Bulpitt of Johnston, R.I. She was dying of stomach cancer in 2008 when she saw a flier from what appeared to be a Catholic charity, says her husband, Dan. Mr. Bulpitt says the family of four was on food stamps after he quit his auto-dealership job to care for his wife.
One of Mr. Caramadre’s employees came to their house and gave them $1,000, Mr. Bulpitt recalls. In a second meeting, the man brought a client who paid them $5,000 “as philanthropy” for helping with what Mr. Bulpitt thought was a tax shelter. His wife, heavily medicated, signed a flurry of papers.
With for today’s investigation, the Journal reports on another of Caramadre’s activities—this one involving bonds with clauses that trigger immediate repayment in full upon a holder’s death:
In a little-known practice, investors can recruit a terminally ill person and together they can scoop up these bonds on the open market at a discount. When the ailing bondholder dies, the surviving co-owner can then redeem them at face value and potentially turn a quick profit.
Amazingly, it doesn’t appear that doing such a thing is illegal, though Caramadre is tied up with several lawsuits. But it raises fairness questions (not to mention ethical and moral ones).
And it certainly ought to be illegal, which is why it’s good that the Journal is on the case here. Its megaphone can help get messes like this cleaned up. And you never know what kind of page-one-worthy story might get flushed out in the process.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.