Sholam Weiss

Sholam Weiss
A photo of Shalom Weiss
Born (1954-04-01) April 1, 1954
Brooklyn, New York, United States
Status Housed at Federal Correctional Institution, Otisville; Otisville, New York scheduled date of release: November 23, 2754
Residence New York
Nationality American
Occupation Former business consultant
Criminal charge 78 counts of racketeering, wire fraud and money laundering
Penalty 845 years imprisonment (reduced to 835 years in 2009), $123.4 million fine, $125 million restitution (paid in full)

Sholam Weiss (also spelled Shalom Weiss; born April 1, 1954) is a former American businessman, currently incarcerated at FCI Otisville, NY.[1]

On February 15, 2000, the Middle District Court of Florida (Orlando) sentenced Weiss, to a term of imprisonment of 845 years, for racketeering, wire fraud and money laundering, restitution of $125,016,656 (restitution is "jointly and severally" with co-defendants), and a fine of $123,399,910, in connection to the collapse of National Heritage Life Insurance Company (NHLC).[2][3]

On July 28, 2016, the government acknowledged by "notice to the court" that Weiss's $125 million restitution had been paid in full.[4][5]

In 1993 Weiss and NHLC entered into an agreement that Weiss would invest NHLC money into viable investment vehicles for the benefit of the insurance company. Weiss received approximately $100 million and bought $177 million face-valued non-performing mortgages at a deep discount, at a purchase price of roughly $87 million. The mortgages were mostly FDIC-insured.[6]

Weiss and other business executives and lawyers working for NHLC either pleaded guilty or were convicted in the fraud case. Some of the executives who were the originators of the crime either received immunity or pleaded guilty with a plea deal for their testimony,[7][8] admitted to forging documents and lying to regulators. In exchange for their testimony against co-defendants like Weiss, the prosecutors would drop their criminal counts and recommend a reduction of their sentence in return for their testimony.[9]

None of the co-defendants who cooperated with the government ended up receiving more than 13 years' imprisonment and some got no prison time at all. In Mr. Weiss's case, he apparently received an additional 830-year prison sentence for not cooperating with the government.[9]

Weiss claims that if he were re-sentenced today under current sentencing guidelines, without losses attributed to him, he would receive a sentence of no more than 37 months - about three years.[10] Weiss has currently served 18 years in prison.

Weiss claims that the satisfaction of restitution was satisfied with the proceeds of the mortgages that he bought for the benefit of NHLC at a substantial discount from its face value (53% discount). The receivers settled these mortgages and collected the full face value, realizing a large profit for the insurance company. This demonstrates that Weiss's involvement and investment on behalf of NHLC did not cause any losses, but, to the contrary, resulted in a huge profit for the insurance company.[11]

At the time of sentencing in February 2000, the court did not give Weiss nor any of the other co-defendants credits towards their restitution, not even for the $65 million dollars which the receivers testified had been collected before trial by selling just a small portion of the mortgages that Weiss bought for NHLC.[10] Likewise, the court never gave credits towards any fair-market value on the remaining portfolio of mortgages that remained under the control of NHLC at the time of sentencing. The rules of the sentencing guideline (§2B1.1, Application Notes: (D) Exclusions from Loss and (E) Credits Against Loss (iii) , "In a case involving collateral pledged or otherwise provided by the defendant, the amount the victim has recovered at the time of sentencing from disposition of the collateral, or if the collateral has not been disposed of by that time, the fair market value of the collateral at the time of sentencing").[12] While at sentencing, the receivers claimed they had collected only $65 million dollars (but no credit was given)/[13] Three weeks after sentencing the receivers had collected a total of $175-$200 million, yielding a profit of $50-$100 million.[14] It took the government to file a satisfaction of restitution 16 years.[5]

Weiss fled the country at the end of his trial and was a fugitive for one year, and was subsequently extradited from Austria.

Early life and background

Weiss grew up in Borough Park, Brooklyn, where his father ran a fruit stand. Born and raised Jewish, he was educated in a yeshiva, where he spoke Yiddish, and received the equivalent of a high school education. He did not learn English until he was in his late teens. He began doing construction work as a young man, and established Windsor Plumbing Supply in 1974, eventually making $20 million a year.[15]

After Windsor Plumbing declared bankruptcy in 1989, Weiss became a bankruptcy specialist. Through that business he met New York attorney Michael D. Blutrich, who was "outside counsel" to National Heritage Life Insurance Company, and his partner Lyle K. Pfeffer, also connected to National Heritage, through whom he became involved with National Heritage.[15]

Weiss was indicted on mail fraud charges, for which he served eight months in prison.[15]

National Heritage Life Insurance

In late 1989, National Heritage reported an operating loss and 27% reduction of capital from a decline of sales, and in 1990 insurance regulators threatened to shut down the company if it did not raise additional capital.[2][16] A group of investors offered $4 million to satisfy regulators, in exchange for a controlling interest in National Heritage. The group provided a $4 million check, but once in control of National Heritage, transferred $3 million from National Heritage to help cover the check.[17] This began a long series of schemes in which millions were stolen from National Heritage by the group of investors. Bad investments further depleted National Heritage capital.[18]

In 1993, the group decided to cover up all the missing money by a "mortgage-backed bond scheme". Weiss (not part of the original investment group) was contracted to purchase discounted mortgages with National Heritage funds, which were put into a mortgage-backed bond.[19] It was believed that the discounted mortgages could be rehabilitated, and thus make a profit. The bond was fraudulently placed on National Heritage books with inflated values.[19]

In 1994, the Delaware Insurance Department did a full examination of the company and placed it in receivership. Three corporations and 13 individuals were convicted, including Weiss.[20][21]

The FBI Section Chief for Financial Crimes stated in 2001 that National Heritage was the largest insurance company failure in U.S. history, resulting $450 million of losses.[22] A 2000 New York Times article stated that Weiss was part of "an immense fraud scheme that siphoned $450 million" from the insurance company.[15] However, Best's Review, the insurance industry monthly magazine, explains that it had $420 million in liabilities to its policyholders, which were covered by state guarantee funds, and were due to a mixture of theft and bad investments.[23]

The $450 (or $420) million figure cited above in media reports and the FBI is the "gross" amount of National Heritage liabilities covered by state guarantee funds, before recovery of National Heritage assets. According to an order by the Delaware Court of Chancery granting liquidation, at the time National Heritage went into receivership in 1994, it had $214 million in liabilities above its assets.[24] The Receiver noted in court submissions (exhibits A-C) that National Heritage recovered $235 million, and reimbursed state guarantee funds $229 million.[25] The policyholders of National Heritage were fully reimbursed by 2000.[26]


The National Heritage financial collapse was believed to be the largest "insurance failure" in history[22] a untrue fact and a narrative that the prosecutors and the FBI have been making to justify the large white-collar sentence that Weiss and his co-defendant received[27][28][29]. The insurance company didn't have any financial lose, after all assets were liquidated the insurance company realized a gain. The sentence imposed on Weiss is believed to be the longest known to have ever been imposed for a white-collar crime.[22][15] The financial collapse of National Heritage Life Insurance Company was caused by mismanagement, bad investments and embezzlement by officers of the company.[30] Weiss, who was not a officer of NHLC, was contracted by these officers as a financial consultant, to restore the health of the company. Ultimately getting involved led to his conviction of money laundering in the “mortgage-backed bond scheme”.[31] See more below, National Heritage Life Insurance Company.

Conviction and sentence to 845 years

At Weiss's sentencing on the National Heritage charges in February 2000, Judge Patricia C. Fawsett sentenced him to 845 years in prison, fined him $123.4 million and ordered him to pay $125 million in restitution (which is jointly and severally with other co defendant, and has fully been paid). Under federal sentencing guidelines, none of the charges against Weiss carried a maximum of life in prison. Fawsett arrived at the extreme 845-year sentence by "stacking" the sentences of five and 20 years for each count, and running them together consecutively. She commented that because of the "magnitude and repeated fraudulent acts", as well as his "disrespect for the law," he should be permanently removed from society. A federal prosecutor claimed that Weiss induced people who would have otherwise never defrauded anyone into taking part in the scheme. Weiss' defense attorney argued that the crime was about money not murder, and the lengthy sentence did not fit the crime. Some legal experts considered the extreme sentence unconstitutional because it effectively imposed a life sentence. Officers of National Heritage Life Insurance, responsible for the mismanagement and embezzlement of the company, plead guilty for reduced sentences. Two of these officers, Lyle Pfeffer and Patrick Smythe, testified against Weiss and his co-defendants in court, despite the fact that they had admitted to lying and forging documents. Fifteen people in all either plead guilty or were convicted. All (living) co-defendants have been released.[32][33][34][35]

Sentencing comparison to codefendants

Defendant Position at (NHL) Plea and Cooperation Agreement counts (Original) Loss Contribution To Company Restitution Years Involvement Year Involvement Sentence (Years)
Patrick C. Smythe[36] CEO Yes 22 (90) $45,000,000 $72,000,000* 1987-1995 8 Years 3 (Original 25)
Michael D. Blutrich[37] Executive Member, Attorney Yes $45,000,000 $82,000,000* 1990-1994 4 Years 13 (Original 25)
Lyle K. Pfeffer[38] Executive Member Yes 22 (90) $45,000,000 $72,000,000* 1990-1994 4 Years 13 (Original 25)
Keith Pound[39] Mortgage specialist No 76 $0 $133,854,104* 1993-1994 1 Year 740 (Deceased)
David L. Davies CEO Yes 4 (10) $0 $0 1987-1991 5 Years 2 (Original 3.5)
Sholam Weiss[40] Investor None No 77(78) $0 $125,016,656* 1993 6 months 835 (Original 845)
Jan Starr[41] None No (Yes , after trial)[42] 11 (18) $0 $70,509,405* 1993 6 months 5 (7 Original)
Jan Schneiderman[43] None No (Yes , after trial)[44] 32 (62) $0 $101,746,119* 1993 6 months 10 (Original 25)

*All Restitution are jointly and severally

Extradition and support from Austria

Weiss surrendered to Austrian authorities in the Fall of 2000, and was extradited in 2002. The extradition was challenged at the United Nations Human Rights Committee, and the European Court of Human Rights, both of which noted that the United States provided assurances that Weiss would receive a full appeal and a full re-sentencing.[45][46] The extradition was also raised in the Parliamentary Assembly of the Council of Europe, also noting the U.S. assurances.[47]

According to a letter from the Austrian Chancellor to President Trump, under Austrian law, Weiss would have received no more than a 10-year sentence, and Austria granted extradition on assurances from the United States that Weiss would receive a full appeal and full re-sentencing.[48] Austria has requested Presidents Bush, Obama and Trump for a commutation of sentence to time served.[49]

Incarceration and subsequent proceedings

Weiss challenged his incarceration in federal court, arguing that the United States violated its extradition treaty with Austria by not providing a full re-sentencing and a full appeal (denied under the fugitive disentitlement doctrine), which United States assured Austria to effectuate the extradition.[50] In 2009, a judge restored his right of appeal to satisfy the treaty obligation, and took ten years off his sentence.[51] Weiss argued that the United States was also required to provide a full re-sentencing, but was denied for procedural reasons, with the court commenting that it was up to the Executive branch (President) to satisfy the international obligation by a commutation of sentence.[52]

Weiss claims that his satisfaction of restitution ($125 million) from recoveries of mortgages he purchased and transferred to National Heritage, shows that he was not personal responsible for losses to National Heritage, and that under current sentencing guidelines, he would only receive a 37-month sentence.[10]

Weiss is currently serving his sentence at the medium security prison, FCI Otisville, in Otisville, New York. His projected release date is November 23, 2754.[53]

See also

References

  1. ↑ "Find an inmate".
  2. 1 2 United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Judgment Doc. 1372.
  3. ↑ Whitney, Sally (1 September 2000). "Anatomy of a Failure". Best's Review. pp. 96–104. Archived from the original on 23 March 2006.
  4. ↑ Notice to the court, filed by the U.S. Attorney for the Middle District of Florida, to the Middle District Court of Florida. United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Doc. 2446.
  5. 1 2 "Satisfaction of Restitution 2016" (PDF). Retrieved 28 July 2016.
  6. ↑ "Anatomy of a Failure". Best's Review.
  7. ↑ "Insurance Fraud Case Defense Has Say|last".
  8. ↑ Rashbaum, William K. (2000-03-09). "845 Years in Prison, If the Authorities Can Catch Him; F.B.I. Says Fugitive Has a Flair For Fraud and Hiding Stolen Cash". The New York Times. ISSN 0362-4331. Retrieved 2018-03-09.
  9. 1 2 "Strip club owner who ratted out mobsters won't go into hiding". nypost.com. 5 March 2018.
  10. 1 2 3 United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Doc. 2454
  11. ↑ "Anatomy of a Failure". Best's Review. September 2000.
  12. ↑ "2016 GUIDELINES MANUAL". United States Sentencing Commission.
  13. ↑ Sholam Weiss PSR, 74, "some of the assets (valued approximately $65 Million) purchased with these fund were recovered".
  14. ↑ "845 Years in Prison". The New York Times.
  15. 1 2 3 4 5 Rashbaum, William K. (9 March 2000). "845 Years in Prison, If the Authorities Can Catch Him; F.B.I. Says Fugitive Has a Flair For Fraud and Hiding Stolen Cash". The New York Times. Retrieved 6 July 2009.
  16. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 96. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  17. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 97. Archived from the original (PDF) on March 23, 2006. Retrieved February 14, 2018.
  18. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. pp. 97–98. Archived from the original (PDF) on March 23, 2006. Retrieved February 14, 2018.
  19. 1 2 Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 100. Archived from the original (PDF) on March 23, 2006. Retrieved February 14, 2018.
  20. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. pp. 100–101. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  21. ↑ Susan Clary, Orlando Sentinel, 2000 "Insurance Crooks To Serve Life - Plus"
  22. 1 2 3 "Testimony of Dennis Lormel, Section Chief, Financial Crimes, Before the House Financial Services Committee, March 6, 2001". FBI. 2001-03-06. Archived from the original on May 12, 2009. Retrieved 2009-07-02.
  23. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. pp. 96–99. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  24. ↑ https://insurance.delaware.gov/wp-content/uploads/sites/15/2017/01/3-NHL-LiquidInjOrder-11-95.pdf
  25. ↑ https://insurance.delaware.gov/wp-content/uploads/sites/15/2017/01/4-NHLPetitionGAOmnClaimsAgr-6-09.pdf
  26. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 104. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  27. ↑ "Leadership and Life Insurance Failures" (PDF). Actuaries Institute: 8–15. 2013.
  28. ↑ "Why do insurance companies fail?". GR Global RE-insurance. 2003.
  29. ↑ "Guarantee Security Life Insurance Company". wikipidia.
  30. ↑ Whitney, Sally (September 2000). "Anatomy of a Failure" (PDF). Best's Review. p. 100. Archived from the original on March 23, 2006. Retrieved February 14, 2018.
  31. ↑ Whitney, Sally (1 September 2000). "Anatomy of a Failure". Best's Review. pp. 96–99. Archived from the original on 23 March 2006.
  32. ↑ "Strip club owner who ratted out mobsters won't go into hiding". 5 March 2018.
  33. ↑ "JUDGE SENTENCES THREE FOR FRAUD". 29 November 1998.
  34. ↑ "60 Minutes Glimpses Part of Scores Story". 10 May 2015.
  35. ↑ United States District Court, MDFL, Case No. 97-71-CR-ORL-22
  36. ↑ Smythe, Patrick C (16 November 1998). "CRIMINAL DOCKET FOR CASE #: 6:97-cr-00071-ACC-1". Pacer.gov.
  37. ↑ Blutrich, Michael D. (16 November 1998). "CRIMINAL DOCKET FOR CASE #: 6:97-cr-00071-ACC-2". Pacer.gov.
  38. ↑ Pfeffer, Lyle K. (16 November 1998). "CRIMINAL DOCKET FOR CASE #: 6:97-cr-00071-ACC-3". Pacer.gov.
  39. ↑ Pound, Keith (15 February 2000). "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-2". Pacer.gov.
  40. ↑ Weiss, Sholam (15 February 2000). "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-1". Pacer.gov.
  41. ↑ "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-4, Docket# 1359". Pacer.gov. 15 February 2000.
  42. ↑ "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-4, Docket# 2034". Pacer.gov. 31 October 2003.
  43. ↑ "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-3, Docket #1396". Pacer.gov. 27 March 2000.
  44. ↑ "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-3, Docket# 2129". 12 December 2008.
  45. ↑ UN Decision
  46. ↑ Sholam Weiss v. Austria, Communication No. 1086/2002, U.N. Doc. CCPR/C/77/D/1086/2002 (2002)
  47. ↑ Parliamentary Assembly, Extradition of Sholam Weiss, Written Question No. 415 by Lord Russell-Johnston (Doc. 9578) April 1, 2003.
  48. ↑ "Letter from Austrian Chancellor to President Trump, 2017" (PDF). 7 August 2017.
  49. ↑ "Letter from Austrian Chancellor to President Bush, 2008" (PDF). 22 October 2008.
  50. ↑ United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Doc. 168
  51. ↑ United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Doc. 189
  52. ↑ United States v. Weiss, Case No. 6:98-cr-99-PCF-KRS. Doc. 198
  53. ↑ "U.S. Bureau of Prisons Inmate Locator". Retrieved 2009-07-02.
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