Insurance deals strike a dissonant chord: “Life settlement” policies helped Michael Antonello buy a Stradivarius, but now they are drawing scrutiny. [Star Tribune, Minneapolis]

Aug. 01--Michael Antonello has used a lucrative career as an independent New Brighton life insurance agent as a way to finance his passions: American impressionist artwork and classical music.

He amassed millions of dollars in commissions by becoming a top seller of tax shelters and by selling scores of policies to rich, elderly clients. He was among the pioneers of an aggressive practice in which policyholders resold their future "death benefits" to investors.

Commissions from insurers enabled Antonello, 58, to spend lavishly on his love of the arts. He bought a 1720 Stradivarius violin, valued at $3 million, and returned to playing seriously. He gave the MacPhail Center for Music in Minneapolis "more than $1 million" in 2008, which got his name emblazoned on a concert hall. And in just three years his tax-exempt Antonello Family Foundation, formed in 2006 to buy art for public display, amassed nearly $17 million in assets from Antonello and his namesake insurance agency.

He also attracted the attention of the insurance industry and both state and federal regulators, who see the "life settlement" arrangements that Antonello facilitated as an abuse of 1980s innovations originally meant to let AIDS patients squeeze some cash from their policies before they died.

Instead, Antonello hawked the policies specifically so they could be resold, generating big commissions along with potentially large payoffs for the investors -- including himself -- who bought them up.

The Minnesota Department of Commerce revoked Antonello's insurance license in December for two years over allegations of misrepresentation and fraud, and federal regulators recommended in July that Congress give the U.S. Securities and Exchange Commission authority to oversee life settlements.

Meanwhile, Antonello has been defending himself against civil lawsuits alleging a litany of misdeeds, including fraud, conspiracy, unjust enrichment, forgery, misrepresentation and breaches of his fiduciary duties.

He declined to comment for this story: "I can't think of anyone who will be helped by a story about me at this time. Even a positive profile, which I believe is more than I could hope for, would not serve the people that I care about," he wrote in a recent e-mail.

Antonello has made his side of the story clear in court filings, though. He denies wrongdoing, and claims he was "wined and dined" and given the "VIP treatment" by insurers whose policies he sold.

He said this changed only when the insurers realized that Antonello's investors would make certain that the policies they purchased wouldn't lapse, ensuring that the companies eventually would have to pay out on them. Elderly people often let policies they no longer need lapse, substantially increasing an insurer's profitability as it collects premiums on the policy but pays only modest surrender charges when they're abandoned.

Antonello argues that sales to investors set the "true market price" for the policies. He alleges that insurers went on a "witch hunt" to retaliate against agents like him and his former partner, Thomas Petracek, who has retired to Florida and could not be reached for comment.

Protecting consumers

State laws restrict the purchase of life insurance to individuals or businesses with something to lose when an insured party dies. Letting speculators buy life insurance constitutes a wager against an insured party's life, which might encourage fraud or worse, the thinking goes.

But the AIDS crisis prompted a different view. In the late 1980s, terminally ill individuals who needed cash began selling their life insurance policies at a discount from the face value, but more than they would get if they surrendered the policies to insurers.

The practice, known as "viatical settlements," evolved into "senior settlements" for elderly insureds who no longer needed or wanted their policies.

These "life settlements" are legal providing that the original purchaser of the policy has a legitimate "insurable interest" in the covered party, but there is a lot of room for abuse. The SEC has brought a number of enforcement actions in recent years alleging fraud or misrepresentation in life settlement deals, which ranged in value from the tens of millions of dollars to at least $1 billion.

The National Association of Insurance Commissioners and National Conference of Insurance Legislators grew so concerned that they came up with model legislation largely designed to deter stranger-originated policies. Versions of the model bills have been adopted into law in 45 states, including Minnesota in 2009.

The SEC convened a task force last August to study problems related to life settlements and the various laws that govern them. In a 93-page report issued July 22, the task force recommends that the SEC seek authority from Congress to regulate life settlements and protect consumers.

Mixing business and pleasure

Michael Antonello grew up in the Twin Cities with a brother and six sisters. His father, William Antonello, was a New Yorker who played center field for the Brooklyn Dodgers in 1953 along with Hall of Famer Jackie Robinson. His baseball career ended in 1957 and he became a steamfitter in his wife's hometown of St. Paul, where he'd played in the minors with the Saints.

William Antonello, who died in 1993, didn't play an instrument but enjoyed music and nudged several of his children into musical careers, according to his obituary.

Michael Antonello trained at the prestigious Curtis Institute of Music in Philadelphia, and in Indiana with the late violinist Franco Gulli. Specializing in the works of Fritz Kreisler, Antonello has been a concertmaster at the Grand Rapids Symphony in Michigan and the Rochester Symphony in Minnesota.

He scaled back his music career and began selling insurance in the 1980s. He passed several securities exams and by the end of the 1990s was also pitching a popular tax shelter for small businesses known as a 419 plan.

Antonello joined up with a Connecticut lawyer named Daniel Carpenter, who founded a controversial version of the plan known as Benistar 419 Plan & Trust. Carpenter described Antonello in a 2006 deposition as one of the smartest brokers in the business, and ranked Antonello "as number four or five on our list of top 10 producers."

Woe to him. The IRS ultimately deemed the Benistar plan to be an illegal tax dodge, a view shared in a May ruling by a panel of the U.S. Tax Court in Massachusetts.

Carpenter was convicted three years ago on 19 fraud charges related to the program and is appealing the verdict as he awaits sentencing. Antonello was not implicated with any crimes, but he's been a defendant in several civil suits stemming from the plan, some of which have settled under the cloak of nondisclosure agreements.

James and Jody Benincasa, the former owners of Mortgages Unlimited in Roseville, are among those who've sued Antonello over the Benistar plan. They say in their pending lawsuit that they relied on his expert advice to set up what they thought would be a long-lasting and lucrative retirement plan. But they say the plan didn't perform as promised, and now they're struggling with a $2 million tax bill.

James Benincasa, now living in Naples, Fla., declined to talk about the lawsuit but said Antonello "was very vocal about his interest in art and his musical talents and what he does. He's as smooth as ice cream."

Others say Antonello is as aggressive as he is refined.

John Paver, of Princeton, Minn., said Antonello was just starting out in the insurance business when he played in an orchestra at Paver's wedding and used the opportunity to solicit his wealthy guests and his second wife. Antonello relies on his arts and music connections to find clients, he said. "He's a go-for-the-throat closer."

Mounting legal problems

The Minnesota Department of Commerce spent three years investigating Antonello's insurance practices, acquiring more than 21,000 pages of documents before it charged him in April 2009 with fraud and forgery in the sale of stranger-originated life insurance policies, or STOLIs. The investigative documents remain nonpublic because Antonello settled the case in December.

Thomas Caswell, Antonello's attorney in a civil lawsuit, insists that his client "did not do STOLIs," explaining that the policies were not presold to investors when they were originated.

The Commerce Department alleged that Antonello had underreported the amount of life insurance certain clients had when he sold them additional policies. In one case, he sold 44 policies on the life of John R. Paulson, 85, of Edina, with an aggregate face value of $127.75 million.

Antonello reaped huge commissions from such sales, which were structured to be resold to investors after a two-year "contestability period" during which insurance companies could cancel the policies without cause.

Antonello and Wealth Management Advisors, an insurance agency and marketing company that he ran with Petracek, admitted no wrongdoing when they agreed to pay a $250,000 fine to settle the Commerce case. Antonello and Wealth Management also lost their insurance licenses.

Meantime, the civil litigation has raged on. Some plaintiffs in a pending federal court case say they discovered that Antonello participated in the sale of about 75 life insurance policies since 2000 to 17 individuals over the age of 75, who then resold their death benefits to strangers.

Here's how the deals typically worked, according to records in various lawsuits: Antonello, Petracek and their clients would set up limited liability companies, typically giving the insured a small stake. The LLCs would then pay the policy premiums for two years, or until they could be sold to investors.

After that, the clients would make fat profits and Antonello and Petracek would get commissions on the sales. By including the insureds, they claim they met a state requirement for an "insurable interest" in the policy.

In one case, Antonello and Petracek partnered with some friends of an elderly real estate developer who has Alzheimer's disease, giving him just a 1 percent share in two LLCs that bought $37 million in insurance on his life.

After the policies were sold to investors, Antonello, Petracek and their clients netted more than $10.5 million, while the developer, Irving Margolis, got just $90,000.

Antonello's lawyers defended the deal, saying Margolis never put up any money and knew what he was doing when the policies were originated. A lawsuit filed by the developer's son, Laurence Margolis, and his co-conservator, Sidney Kaplan, settled for an undisclosed sum. Kaplan said the agreement bars them from discussing the case.

Antonello's and Petracek's gravy train began to come apart in 2005 when Jean Philipp, a St. Louis-based fraud investigator for the MetLife Insurance Co., noticed a pattern in ownership changes that took place after the rescission periods expired on policies they'd originated.

Philipp called other insurers who'd done business with the pair and found similar patterns, according to an order filed in May in a case MetLife has pending before U.S. District Judge David Doty in Minneapolis.

Philipp, who declined to comment, helped the Commerce Department with its investigation, according to court filings in the case. MetLife wants Antonello and Petracek to return $1.7 million in commissions they were paid on five policies the company rescinded.

Antonello and Petracek characterized her efforts as a "witch hunt," and countersued. Doty ruled in favor of Philipp and MetLife in May.

The sound of music

In the past couple of years, as the lawsuits and Commerce investigation heated up, Antonello has busied himself by practicing on his Stradivarius and playing concerts and recording with orchestras in Eurasia, said Peter Arnstein, a pianist who's played with Antonello for about 20 years.

Antonello never discussed the details of his insurance problems, Arnstein said, "other than to say he's innocent." But he must have saved his money, he added, because Antonello seems to be traveling and playing a lot.

"Sometimes I don't see him for six months and sometimes I see him every week," Arnstein said, noting that they gave a recital recently in tiny Perkinstown, Wis.

In one sense, the collapse of Antonello's insurance business might have a silver lining for him.

"Playing violin, that's definitely what he'd like to do the most," Arnstein said.

Dan Browning --612-673-4493

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