Leon Lowenthal, accused of $40.3 million insurance fraud

A former Rockland County insurance broker has been sued for $40.3 million in an alleged life insurance rebating scheme.

Fidelity and Guaranty Life Insurance Co. accused Leon Lowenthal of Monsey of fraud and conspiracy in a complaint filed Oct. 2 in U.S. Bankruptcy Court in White Plains.

“Lowenthal engaged in a massive, fraudulent rebating scheme,” the lawsuit states, and with other conspirators induced Fidelity to pay “no less than $40,321,387 in commissions and bonuses through the submission of false and fraudulent life insurance applications.”

The action was filed as an adversary proceeding in bankruptcy court because Fidelity wants to block Lowenthal from using bankruptcy to get out of paying the alleged fraudulent debt.

Lowenthal petitioned for Chapter 11 reorganization last December, declaring $9,500 in assets and nearly $4.7 million in liabilities, primarily for debts for his insurance brokerages, Prosperity LM Inc. and PW Insurance Agency Corp.

His bankruptcy petition does not name Fidelity as a creditor. Other creditors have filed claims for $9.2 million, nearly twice as much as Lowenthal has listed.

He acknowledged nearly $3.4 million in “questionable loans,” in an affidavit, many of which “may be unenforceable under usury laws or inflated because there has been no accounting for cash repayments.” He also stated that “certain of my creditors assert that their claims against me arise from a Ponzi scheme.”

Lowenthal sold Fidelity life insurance policies from 2015 to 2017. His insurance license was revoked in 2018.

Fidelity claims that several co-conspirators loaned Lowenthal money to fund life insurance policies. He created sham trusts for the funds and for the policies, according to the complaint, and used the loans to pay the first year of premiums.

After a year, the insurance policies were allowed to lapse.

Lowenthal and his funders allegedly profited, because Fidelity pays 20% to 55% more in commissions and bonuses during the first year of a policy than it receives in premiums. Its expectation is that it will make up the difference as policies are kept in force for years.

Fidelity does not allow policies to be bought on borrowed money, according to the complaint, and the applications Lowenthal submitted affirmed that the premiums would not be paid with borrowed money.

Lowenthal allegedly used the commissions to repay the funders and he pocketed what was left over.

For example, $800,550 in premiums were paid for a $5 million policy in 2016, and Fidelity paid Lowenthal $950,000 in commissions. When the policy lapsed after one year, Lowenthal and his funder allegedly netted $149,450.

Fidelity claims that it paid Lowenthal nearly $4.5 million in commissions and bonuses. For his part in the alleged scheme he used the money to buy two houses and a commercial property in New Jersey.

In the bankruptcy petition, Lowenthal also listed potential debts totaling $1.1 million to Fifth Third Bank for three home loans he co-signed “for friends as a favor.”

He declared a $162,735 obligation to the IRS, though the agency claims it is owed $203,447.

Among the claims filed against him are $7.6 million from five individuals and a company who also are named in Fidelity’s complaint as life insurance policy funders.

Lowenthal states in his affidavit that his father-in-law – identified as Philip Herzog and as a life insurance funder in Fidelity’s complaint – has created a $600,000 fund for paying his creditors.

“I have almost no assets,” Lowenthal said. “My goal is to make a fresh start.”

Fidelity is represented by Manhattan attorneys Frank Taylor, Francisco Vazquez and Julie H. Firestone.

Lowenthal is represented in the bankruptcy by Bedford attorney John W. Mitchell and Manhattan attorneys Sheldon Eisenberger, Mark A. Frankel and Sheldon H. Gopstein. They did not respond to an email request for comment on behalf of their client.