Shalom Weiss

From Wikipedia, the free encyclopedia

Shalom Weiss (also spelled Sholam Weiss; born April 1, 1954), was an American businessman and business consultant. He was convicted, in absentia, and sentenced on February 15, 2000 (also in absentia) to a consecutive sentence of 845 years for charges relating to the collapse of National Heritage Life Insurance. This financial collapse has been reviewed by Best’s Review, an insurance industry journal.^[1] Weiss's sentence was the longest known to have ever been imposed for a white-collar crime. His trial and sentence were conducted in absentia because Weiss absconded, left the United States and evaded authorities for one year. Weiss was convicted of 78 counts including racketeering, wire fraud, and money laundering and ordered to pay $125 million in restitution and a $123 million in penalties. About a dozen individuals were convicted for involvement in the collapse; another defendant, Keith Pound, received a 740 year sentence, and $139 million in restitution. Weiss has not received an appeal to his conviction (despite assurances made by the U.S. during his extradition from Austria) in accordance with the fugitive disentitlement doctrine. Through his legal representation, he continues to maintain that he is innocent of the criminal counts of which he was convicted.

Contents 1 Amount of money diverted from National Heritage Life Insurance company 2 Looting of National Heritage (1990-1993) 3 Government’s version of Weiss’s involvement in National Heritage 4 Weiss's version of his involvement 5 Fugitive 6 Extradition from Austria 7 Incarceration and current proceedings 8 External links 8.1 Prosecution's perspective 8.2 Defense's perspective

[edit] Amount of money diverted from National Heritage Life Insurance company

Some media reports have claimed that that the National Heritage fraud case was the largest in US history, involving as much money as $450 million dollars.^[2] Other reports have put the amount at about $250 million,^[3] $125 million,^[4] or $25 million.^{[citation needed]}

The larger figures might have been based on the Receivership report on the amount of money needed to repay the policyholders of National Heritage when it went into receivership. According to the Delaware Insurance Company (that oversaw the receivership), that amount was $420 million.^[1] The money used to repay the policyholders came from the assets of National Heritage and state guarantee funds.^[1] According to George Piccoli, Deputy Receiver for National Heritage, the policyholders were repaid by July 2000.^[1] These high figures may have also been based on the amount of restitution ($125 million) and fines ($123 Million) imposed on Weiss.

According to the Government’s indictment, page 28, the total amount of money illegally diverted from the National Heritage Life Insurance company for personal use, by all of the defendants in the case, was about $27.5 million dollars (which may explain why some reports in the media put the figure at about $25 million). However, of that amount, the indictment alleges on page 29 that Weiss, himself, illegally diverted about $7.4 million dollars for his personal use. (In his defense, Weiss claims that this $7.4 million dollars was used to cover legitimate overhead expenses.) The Weiss case was primarily a money laundering case. His Pre-sentencing Report, p. 33, states that Weiss was involved in the laundering of about $103 million dollars.

[edit] Looting of National Heritage (1990-1993)

^[5]

In 1990, National Heritage Insurance Company came under threat of regulatory action by the Delaware Insurance Department because of its shortage of capital. Taking advantage of this, three individuals, David Davies, Lambert Aloisi, and Patrick Smythe, created a shell company (Tri-Atlantic) and offered $4 million dollars for controlling stock in Lifeco, the parent company of National Heritage. National Heritage accepted the offer (to raise needed capital), and Mssers. Davies, Aloisi, and Smythe were made officers of National Heritage. Using their new positions, they fraudulently transferred $3 million from National Heritage to cover the $4 million dollar check they had used to purchase controlling stock, so that they actually paid only $1 million. They then continued a series of loan, stock, and bond schemes to “loot” National Heritage. They also set new policies, which were initially successful, but through bad investments, created further financial losses for National Heritage. By 1993, through embezzlement and bad investments, National Heritage was in a financial mess. According to Best's Review, p. 100,^[1] these events predated Weiss’s involvement in National Heritage.

[edit] Government’s version of Weiss’s involvement in National Heritage

^[6]

In 1993, Michael Blutrich, general counsel to National Heritage, brought in Sholam Weiss as a business consultant to help fix the financial mess of National Heritage. The result, according to the Government, was a mortgage-backed bond scheme. Directed by Mssrs. Blutrich and Smythe, National Heritage illegally transferred funds to South Star, the company controlled by Weiss, which used the money to purchase and service non-performing mortgages. These mortgages were then transferred to National Housing Exchange (set up for this purpose), which used the mortgages to secure a bond. That bond was then fraudulently sold back to National Heritage. According to the Government, the bond had a value of only $60 million, whereas it was falsely represented as having a value of $126 million, adding to the already heavy financial losses of National Heritage, and leading to receivership in May of 1994.

[edit] Weiss's version of his involvement

^[7]

According to Weiss, Michael Blutrich (General Counsel to National Heritage), sought his advice on how to restore the financial health of National Heritage. He was told that National Heritage had a financial hole of $35 million dollars due to bad investments, but did not disclose the fact that it had been looted by some of its officers.

Weiss proposed a two-prong solution. First, he and others could invest equity into National Heritage. Second, National Heritage could purchase non-performing mortgages, and service them to increase their value (at the time, non-performing mortgages were considered a good investment).

National Heritage transferred around $100 million dollars to South Star, the company Weiss used to purchase and service the mortgages. Of that amount, according to the Government’s indictment (pp. 25-34), about $85 million was used to purchase non-performing mortgages from mostly government agencies; about $3 million was returned to National Heritage; about $4 million went to two individuals, Blutrich and Pheffer, for their personal use; and about $7.5 million went to Weiss for his personal use. During his trial, Weiss testified under oath that the money used for his personal use was for legitimate business expenses. Weiss also testified that during his business relationship with National Heritage, it was his understanding (based on his conversations with the General Counsel to National Heritage), that the purchase of the mortgages was 100% legal. Weiss also invested properties of his, valued at the time to be $15 million.

Before Weiss could completely service the mortgages (making them “performing”), officers of National Heritage had the mortgages transferred to National Housing Exchange, where they were used to secure a bond, which was then sold to National Heritage (the “mortgage-backed bond scheme”). Weiss claims that he resisted this transfer of mortgages, and had no part in the fraudulent bond scheme. His involvement with National Heritage, according to him, ended there, lasting only about three months.

Weiss made the following points in support of his argument. First, according to the Government, the officers of National Heritage, Davies, Aloisi, Smythe, and Blutrich, were successful in keeping their illegal activities secret, even from National Heritage’s Chief Financial Officer. Keeping the illegal activities from Weiss would be consistent with their mode of operation. Second, the Government contends that many of the people involved in the schemes (such as Michael Blutrich), were attorneys, which gave their activities an air of legitimacy, and gave people such as Weiss a sense of trust in the legality of their activities. Lastly, Weiss invested $15 million dollars of his own equity into National Heritage (and therefore was adversely affected by National Heritage’s insolvency). According to Weiss, this is evidence of trust in the health of the company and legitimacy of his transactions.

[edit] Fugitive

On October 18, 1999, after a nine-month trial, Weiss failed to appear while the jury was deliberating,^[1] and was declared a fugitive. Having no drivers license, mortgage or passport, authorities had difficulties tracking him down. Before long, they realized that Weiss had become a fugitive. Weiss contends a manipulative person on his legal team made him panic and caused him not to return to court. His time as a fugitive has been dramatized on a TV program called “On the Run: Globetrotter”. After living in Brazil, he went to Europe where he was eventually apprehended by Austrian authorities in the Fall of 2000.

Investigators wore out all their leads roughly a year after his disappearance. Unbeknown to them, he was living a life of luxury in São Paulo, Brazil. He had used a cousin's Canadian passport to leave the country. About half a year later, an attentive Brazilian interpol agent spotted him and contacted the FBI.

It took the FBI and local authorities another year to successfully track him down. By following his Brazilian girlfriend, they finally trapped Weiss in Vienna, Austria in October of 2000. He had completely changed his appearance, and no longer resembled the man charged in Orlando, Florida in 1999. Mr. Weiss was so unrecognizable that even though Austrian police followed him to his apartment on that day, they were unable to identify him and put his apartment under surveillance, hoping to arrest him. Without being identified by the Austrian police, Weiss left his apartment for several hours to consult with his attorney. According to Weiss, by advise of his attorney, he returned to his apartment to surrender himself to the Austrian police. When asked if he was Shalom Weiss, he answered, "I want to see my attorney."

He was temporarily released on a $1,000,000 bail while his extradition process was being handled. However, Austrian law states that bail may not be accepted using illegal funds, and it was determined that Weiss could not have otherwise paid the sum of money.

[edit] Extradition from Austria

Weiss’s extradition was one of the largest cases in Austria. The case went to the Austrian Appeals Court (Higher Court of Vienna) and Austria’s three highest courts: Supreme Court, Constitutional Court, and Administrative Court. The case also went to the European Court of Human Rights, and the United Nations,^[8] and was briefly reviewed by the Council of Europe.^[9] These court proceedings have been reviewed by the E.U. Network of Independent Experts on Fundamental Rights, in its 2003 Report on Austria.^[10]

During extradition proceedings, Austria requested assurances from a U.S. court that Weiss would be given a full appeal after his extradition. (A U.S. Appeals Court had earlier denied Weiss his appeal, under the fugitive disentitlement doctrine, because he was a fugitive.) Austria found its legal authority to request these assurances under the European Convention of Human Rights, and the U.S.-Austria extradition treaty. Austria, on September 11, 2002, denied extradition because U.S. courts would not give the assurances. Because assurances could not be secured from a U.S. court, the U.S. Department of Justice Office of International Affairs provided Austria with assurances that he would get both a re-sentencing and a full appeal. Austria then extradited Weiss on June 9, 2002. The U.S. Government and Weiss present their respective interpretations of these events in their legal submissions, together with copies of the relevant Austrian and U.S. documents, at Weiss’s Docket.^[11]

The UN Human Rights Committee and the Austrian Administrative Court both placed stays (a hold) on Weiss’s extradition, and were still reviewing the case when he was extradited. The Austrian Administrative Court thus found the extradition to be illegal, in violation of its stay order. The UN Human Rights Court held that the extradition was a violation of the UN Covenant on Civil Rights, as well as its stay order, and directed Austria to ensure that no harm would be done to Weiss because of the (illegal) extradition. ^[12] On both decisions, See E.U. Report, pp. 30-31. ^[9]

[edit] Incarceration and current proceedings

^[13]

After Weiss was extradited to the United States, the U.S. Government did not provide him with a re-sentencing or an appeal. For this reason, Weiss challenged his incarceration in a habeas corpus petition in federal court, claiming that the United States violated its extradition treaty with Austria. Because the courts cannot provide a re-sentencing and appeal, Weiss argues that, under treaty law, the Executive Branch must still provide the benefit of a re-sentencing and appeal. These proceedings are still pending, as of January 21, 2007. ^[14] Weiss remains barred from appealing his conviction under the fugitive disentitlement doctrine. Weiss is now serving his 845-year sentence at USP Coleman, Coleman Florida, forty miles from Orlando.

Shoalm Weiss was moved from Coleman Federal in Central Florida Penitentary to Lewisburg Maximum security Penitentary the home of the famous G-Block that housed John Gotti and other famous members of organized crime.

[edit] External links

[edit] Prosecution's perspective

• Article from "Best's Review"

[edit] Defense's perspective

• Opinion of the United Nations Human Rights Committee, on issues brought before it by Weiss against Austria