The Manhatten United States Attorney and the Federal Bureau of Investigation have charged three insurance agents with a $100 million fraud scheme involving stranger-owned life insurance or STOLI.

Typically, people buying a life insurance policy have some relationship to the person being insured. In contrast, with STOLI arrangements, a policy is bought with the intent to resell it to a third-party investor. Many insurance companies won’t allow this, and in varying degrees state laws prohibit it.

In an indictment announced Feb. 16, federal authorities accuse three agents–Michael Binday, 48, the president and owner of a Scarsdale, N.Y. insurance agency; James Kevin Kergil, 57, an insurance agent based in Peekskill, N.Y.; and Mark Resnick, 56, an insurance agent based in Orlando, FL–of conspiring to defraud major insurance companies into issuing life insurance policies to straw buyers, when the true owners of the policies were third-party investors and financiers. All three agents have been arrested.

The insurance companies referred to in the case are: American General Life Companies; Lincoln Financial Group; Security Mutual insurance Company and Union Central Life Insurance Company.

The policies involved were universal life policies, which combine an investment component with a death benefit–an amount paid to beneficiaries when the insured dies. Life insurance companies routinely take the position that the death benefit should correspond to the amount of money that the insured’s dependents would need to replace lost earnings or to cover estate taxes and other expenses. When issuing the policies they rely on information provided about the applicant’s financial condition and income.

In a statement announcing the indictment, Manhattan U.S. Attorney Preet Bharara said that the three insurance agents “concocted an elaborate scheme, using straw buyers and third-party agents, to deceive life insurance providers into issuing policies to unintended beneficiaries. And when their scheme was unraveling, they allegedly sought to throw investigators off the trail by destroying documents and telling other individuals to lie. Their alleged actions victimized the companies that issued these policies, and hurt the grand jury process.”

According to the indictment, the agents recruited elderly clients of modest means to serve as straw buyers and apply for universal life insurance policies. In exchange, the agents would pay them when the policies were resold.

Meanwhile, the agents did the necessary paperwork, misrepresenting key elements of the application. For example, they stated that the straw buyers were worth millions, although almost all of them had a net worth of well under $1 million. They shifted money around to make it look like the buyers were paying the premium themselves, while in fact it was coming from third-party investors.

While the applications stated that the buyers did not intend to sell their policies after they were issued, the agents had already made arrangements to sell them on the secondary market. All this generated hundreds of millions of dollars worth of commissions for the agents.

As the indictment notes, insurance fraud hurts companies because it leaves them holding the bag in a bad business deal. And that indirectly hurts consumers because companies must raise their premiums to make up for lost profits.

The indictment describes misrepresentations at every turn, in some cases starting with the system for recruiting straw buyers. Resnick, one of the agents, advertised burial insurance and then persuaded consumers who responded to the ad to buy life insurance instead.