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A photo of Shalom Weiss
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|
|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)|
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).
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.
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, 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.
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.
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. 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.
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. 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"). While at sentencing, the receivers claimed they had collected only $65 million dollars (but no credit was given)/ Three weeks after sentencing the receivers had collected a total of $175-$200 million, yielding a profit of $50-$100 million. It took the government to file a satisfaction of restitution 16 years.
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.
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.
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. 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. 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.
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. 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.
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. A 2000 New York Times article stated that Weiss was part of "an immense fraud scheme that siphoned $450 million" from the insurance company. 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.
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. The Receiver noted in court submissions (exhibits A-C) that National Heritage recovered $235 million, and reimbursed state guarantee funds $229 million. The policyholders of National Heritage were fully reimbursed by 2000.
The National Heritage financial collapse was believed to be the largest "insurance failure" in history 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. 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. The financial collapse of National Heritage Life Insurance Company was caused by mismanagement, bad investments and embezzlement by officers of the company. 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”. 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.
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||CEO||Yes||22 (90)||$45,000,000||$72,000,000*||1987-1995||8 Years||3 (Original 25)|
|Michael D. Blutrich||Executive Member, Attorney||Yes||$45,000,000||$82,000,000*||1990-1994||4 Years||13 (Original 25)|
|Lyle K. Pfeffer||Executive Member||Yes||22 (90)||$45,000,000||$72,000,000*||1990-1994||4 Years||13 (Original 25)|
|Keith Pound||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||Investor None||No||77(78)||$0||$125,016,656*||1993||6 months||835 (Original 845)|
|Jan Starr||None||No (Yes , after trial)||11 (18)||$0||$70,509,405*||1993||6 months||5 (7 Original)|
|Jan Schneiderman||None||No (Yes , after trial)||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. The extradition was also raised in the Parliamentary Assembly of the Council of Europe, also noting the U.S. assurances.
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. Austria has requested Presidents Bush, Obama and Trump for a commutation of sentence to time served.
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. In 2009, a judge restored his right of appeal to satisfy the treaty obligation, and took ten years off his sentence. 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.
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 personally responsible for losses to National Heritage, and that under current sentencing guidelines, he would only receive a 37-month sentence.
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.
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- 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.
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- United States District Court, MDFL, Case No. 97-71-CR-ORL-22
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- Pfeffer, Lyle K. (16 November 1998). "CRIMINAL DOCKET FOR CASE #: 6:97-cr-00071-ACC-3". Pacer.gov.
- Pound, Keith (15 February 2000). "CRIMINAL DOCKET FOR CASE #: 6:98-cr-00099-CEM-KRS-2". Pacer.gov.
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- "Letter from Austrian Chancellor to President Trump, 2017" (PDF). 7 August 2017.
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