Prepaid Funeral CFO is Indicted In $600 Million Fraud Ring

ST. LOUIS ? A decade-long criminal fraud in the prepaid funeral business has or will cost multiple state agencies, consumers and funeral homes more than $600 million, federal prosecutors claim in an indictment unsealed Friday. The indictment charges the president and chief financial officer of Clayton-based National Prearranged Services Inc., Randall Sutton, 63, with six felony counts of mail fraud, one felony count of money laundering and two felony counts of wire fraud.?

Sutton was also the director of two associated Austin, Texas, life insurance companies, Memorial Service Life Insurance Co. and Lincoln Memorial Life Insurance Co. The indictment accuses Sutton, of Chesterfield, and unidentified “others” of running multiple scams to siphon millions out of the prearranged funeral services industry through contracts sold in 19 states.

“The losses resulting from the business failure will far exceed 600 million (dollars),” said Assistant U.S. Attorney Jeff Jensen. That estimate is for the cost to insurance guaranty associations, which step in when an insurance company goes out of business or becomes insolvent. Jensen said customers and funeral homes stood to lose many millions more.

“Our job as prosecutors is to try to sort out how much of that loss resulted from fraud,” he said. “This indictment is the beginning of that sorting-out process.” Jensen would not name the “others” in the indictment, the only one so far related to NPS. He said the investigation is continuing.

NPS offered prepaid funeral contracts as a way for consumers to ensure that their funerals would be paid for and not a burden for their heirs.

Consumers bought a contract, and their money was then used to buy a life insurance policy that would pay funeral expenses when they die.

NPS and an associated company called Forever Enterprises were run by Doug Cassity and two sons, once the darlings of the business press due to growth fueled by aggressive sales tactics and creative products.

But as far back as 1998, Sutton and the others knew that the anticipated costs of prepaid funerals exceeded the expected life insurance proceeds by $98 million, the indictment claims.

Beginning that year, Sutton and others began looting money from the companies, the indictment claims.

Customers only found out that their burial expenses had been at risk when NPS and Forever Enterprises collapsed last year.

Prosecutors say the frauds took a variety of forms:

— Customers who signed applications and paid in full for life insurance policies had their applications altered by NPS employees so that it looked like they had only partially paid. NPS pocketed the “vast majority” of the difference.

— NPS altered documents to remove the customers or their funeral homes as beneficiary of the policies and inserted the NPS name. NPS used those policies either to get $65 million in loans without the customers’ knowledge or converted those policies from whole life policies to renewable policies to extract more than $40 million in cash.

— NPS also took money from funeral home accounts and sent fake account statements to homes to cover it up.

— Sutton and others at NPS also siphoned off over $50 million through promissory notes, the indictment says.

Sutton was arrested by federal agents Friday morning and released on $50,000 bond later in the day. Grant Shostak, one of his lawyers, said Sutton would plead not guilty.

Burt Shostak, another of Sutton’s attorneys, said, “We will fight the case vigorously.”

Many of the indictment’s allegations mirror those that have been made by state regulators for more than a year and claims in a civil racketeering conspiracy lawsuit filed late Thursday by various guaranty associations and a court-appointed receiver in Texas.

That suit says that the Cassity family controlled a trust that owned NPS, Forever Enterprises and the life insurance companies and that the Cassitys and other employees and executives of the companies were in on the fraud.

Doug Cassity’s lawyer, Scott Rosenblum, said Cassity had done nothing wrong and had not been involved in the “intricacies” of the company since the beginning of the decade.

Barry Short, lawyer for son Brent Cassity, said he had not read the indictment and could not comment. But he said Brent Cassity had done nothing wrong. “Obviously, Brent has not been charged. They obviously don’t even have enough to make allegations against Brent.”

Tyler Cassity’s lawyer could not be identified Friday.