Close Race for 'Crookedest'

Among the insurance industry's biggest companies, competition for the title of "crookedest" heated up in 1996. Three years ago, Metropolitan Life was fined $20 million for cheating its customers. Last year the nation's largest insurance company, Prudential, easily outdistanced Metropolitan by being fined $35 million. Also, Prudential is paying more than $1 billion in restitution to fleeced policy-holders.

After an eighteen-month investigation, a task force of insurance regulators from thirty states concluded that for thirteen years Prudential salespeople coast to coast had practiced a deception called "churning," often with the knowledge and sometimes approval of officials up to at least regional vice presidents. Indeed, some sleazy salespeople seem to have been promoted to managerial positions because of their success at duping customers.

"Churning" was a racket in which as many as 10 million customers were sweet-talked into using the cash value of their old insurance policies to pay the premiums on new, more expensive policies. They were not warned that the upgrading could be so costly that it would eat up their equity, leaving them with premiums they couldn't afford--and therefore no coverage.

Arthur Ryan, Prudential's chairman since late 1994, admitted that the charges were accurate and fired several salespeople and managers and a senior vice president. But some of the discarded employees transformed themselves from con artists into whistleblowers, providing investigators with sordid inside details about Prudential's operations. Potentially most damaging--and certain to be used by the army of plaintiffs' lawyers already assaulting the Rock--were sworn statements from some of the former employees claiming that Prudential officials had ordered them to destroy any documents that might reveal unsavory marketing practices.

As an embattled defendant, Prudential was far from lonely. Numerous other insurance companies were sued, or facing regulatory penalties, for identical or similar misconduct. When Mutual of New York paid $12.5 million to a mob of unhappy Alabama consumers, for example, The Wall Street Journal called the settlement "the latest in a series involving alleged deceptive sale practices at many of the nation's biggest insurers."

Piggish Banks and Laundromats

Money-laundering, a highly profitable crime, is routinely committed by U.S. banks, but the laws against it are vague; it is hard to prove and thus rarely prosecuted. Justice Department investigators floundered through 1996 in an effort to determine if Citibank had helped Raúl Salinas, brother of Mexico's former president, Carlos Salinas, launder at least $100 million in dirty money by transferring it to bank accounts abroad.

Raúl Salinas is now in prison in Mexico on charges of "inexplicable enrichment." But Citibank apparently found nothing inexplicable in the fact that Salinas, who never earned more than $190,000 per year working for the government, had the bank handle $100 million for him. Citibank officials say their internal investigation turned up no improprieties.

Some law-enforcement authorities thought it odd that Citibank refused to let its best and most experienced money-laundering compliance officer, Jane Wexton, a Citibank vice president and senior attorney, participate in the investigation. Allegedly Wexton was told she couldn't even ask questions about the case, although up to that point, says the Journal, she had been "regularly consulted by bank officials and outside regulators when any suspicious activities came up" because she was considered "a 'cop's cop'...a straight shooter who would be likely to tell regulators about something she considered wrong." Wexton, who had been at Citibank seven years, quit.

The Journal says "people inside Citibank" think the Justice Department is "developing an indictment against the bank."

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