Merrill Lynch Life Agency to Pay $18M Over Alleged Funeral Scam

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May 22, 2009 Friday 10:05 AM EST

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Merrill Lynch Life Agency to Pay $18M Over Alleged Funeral Scam

Sean P Carr

CHICAGO

Merrill Lynch Life Agency will pay $18 million to resolve a dispute over its role in a scheme involving preneed funeral arrangements, Illinois regulators announced.

MLLA will pay into a special fund to finance prepaid arrangements made by more than 47,000 families and managed by the Illinois Funeral Directors Association. Under the terms of the consent order between state authorities and MLLA , it will pay $18 million plus costs that will be held in escrow and subject to distribution guidelines controlled by Insurance Director Michael McRaith and Comptroller Dan Hynes.

Insurance regulators also revoked the Illinois insurance producer's license of Edward Schainker, an MLLA agent who allegedly developed, marketed and sold an insurance scheme to the IFDA. State regulators said they also fined Schainker $100,000, the maximum penalty allowed by Illinois law.

According to the order, an IFDA funeral director who agrees to provide what a client family arranged with a preneed contract will receive a proportionate share in order to substantially offset potential IFDA losses. To the extent that a funeral director opts not to agree to provide the same level of benefits, a share will be paid directly to client families with nonguaranteed contracts.

"This Stipulation And Consent order ensures that the well-publicized IFDA challenges do not hurt the more than 47,000 Illinois families who prepaid for funerals," McRaith said in a statement. "In addition, this resolution supports hundreds of funeral directors who face financial burdens like many other small businesses."

The consent order resulted from an insurance division investigation begun after a referral by the Illinois Office of the Comptroller in 2006.

Merrill Lynch & Co. spokesman Bill Halldin said MLLA admitted to no wrongdoing. It agreed to the consent order "so that we can be a part of ensuring that families get the service they paid for," he said.

(By Sean Carr, [email protected])

May 23, 2009