|U. S. Department of Justice
Patrick J. Fitzgerald United States Attorney
|United States Attorney Northern District of Illinois
219 South Dearborn Street, Fifth Floor
Chicago, Illinois 60604 (312) 353-5300
|FOR IMMEDIATE RELEASE
THURSDAY OCTOBER 31, 2002
AUSA/PIO Randall Samborn (312) 353-5318
NEAR NORTH INSURANCE EXECUTIVE INDICTED ON NEW RICO AND FRAUD CHARGES IN ALLEGED
$20 MILLION FRAUD SCHEME
CHICAGO -- A Chicago insurance executive was indicted today on new federal fraud
and racketeering charges, alleging that for at least 12 years he illegally used
millions of dollars in insurance premiums for personal and business expenses for
himself and his companies. The defendant, Michael Segal, president and chief
operating officer of Near North Insurance Brokerage, Inc. (NNIB), which he
controlled through his ownership of its parent corporation, Near North National
Group, Inc. (NNNG), allegedly looted a business account that held insurance
premiums and knew that it was consistently millions of dollars short. Near
North’s premium trust fund account, or PFTA, an account that licensed insurance
brokers must maintain under Illinois law, was allegedly deficient in amounts
ranging from $5 million at the end of 1990 to approximately $24 million by 2001.
The charges were contained in a 16-count superseding indictment returned late
today by a federal grand jury, announced Patrick J. Fitzgerald, United States
Attorney for the Northern District of Illinois, and Thomas J. Kneir, Special
Agent-in-Charge of the Chicago Field Division of the Federal Bureau of
Investigation. Segal was charged with seven counts of insurance fraud, seven
counts of mail fraud and one count each of wire fraud and racketeering.
Segal, 60, of 1040 North Lake Shore Dr., and 405 North Sheridan Rd., Highland
was initially arrested in this case on Jan. 26, 2002, at a hotel near his firm’s
offices, located at 875 North Michigan Ave. He was indicted the following month
on a single count of insurance fraud, and today’s indictment adds new charges.
Segal remains free on a on a $750,000 unsecured signature bond. The case is
scheduled for a status hearing at 9:45 a.m. tomorrow, Nov. 1, 2002, before U.S.
District Judge Ruben Castillo.
Near North serves as an insurance broker for hundreds of carriers and public,
private and corporate customers, providing various types of insurance coverage,
including property, casualty, fire, life, health, and workers’ compensation
insurance, as well as specialty insurance products.
Among the new charges is a single count of racketeering, which alleges that NNIB
and NNNG comprised an entity referred to as the Near North National Insurance
Enterprise, whose purpose it was to: 1) enrich Segal and the members,
associates, partners, employees and agents of the enterprise through acts of
mail fraud and wire fraud, and 2) preserve and protect the power, territory and
wealth of Segal and the enterprise, and promote and enhance the size and
strength of the enterprise.
The racketeering count alleges that it was “Segal’s objective to engage in an
ongoing and continuous fraud scheme” in which trust funds – not belonging to
NNIB – were unlawfully withdrawn from the PFTA and disbursed to pay for the
expenses of the enterprise, business acquisition, expansion, investment and
political contributions, even though he knew that the premium fund was millions
of dollars deficient. It was also his objective, the indictment alleges, to
retain funds for his own and his enterprise’s use and benefit that should have
been promptly refunded to customers.
According to the indictment: “Segal and members of the enterprise used his
economic strength and resources and the financial resources available to him
through his ownership and control of the enterprise and his continuous misuse of
trust funds to instill in others the fear of retaliation and retribution by
defendant . . . to cause others to be obedient to defendant . . . and to deter
others from exposing the unlawful and unethical activities of defendant . . . .
The methods and means to do this included the use of substantial economic
resources to threaten to and to conduct expensive retaliatory litigation against
those who would oppose his will, question his decisions, or expose his unlawful
and unethical conduct.”
The racketeering count alleges that between 1990 and 2002, Segal committed 15
separate acts of mail fraud and wire fraud, any two of which, if proven, would
constitute a pattern of racketeering activity. Under the Racketeer Influenced
and Corrupt Organizations Act (RICO), the indictment also seeks forfeiture of at
least $20 million and all property or other ownership interests that Segal has
in NNIB and NNNG, including any employment/consulting agreements and loan
guarantees that he has with NNIB. As substitute assets, the indictment seeks
forfeiture of Segal’s Highland Park residence.
“The corporate greed that is alleged in this indictment will not be tolerated,”
Mr. Fitzgerald said. “We will vigorously prosecute individuals who deliberately
mislead regulators, customers and others for financial gain. The indictment in
this case alleges that Segal lied to regulators for year after years and stole
money from his customers,” he said.
The indictment also alleges that between as early as 1990 and this year, Segal
engaged in a fraud scheme to unlawfully obtain money from the PFTA and deprive
various carriers, Near North customers and others of his honest services in
order to benefit himself and others, including
members of his family and business entities that he owned or controlled,
including NNIB and NNNG.
According to the indictment, the Illinois Insurance Code requires licensed
insurance brokers to maintain a PFTA, in which all premiums collected are to be
deposited, and establishes other rules regulating such activities as withdrawals
and record-keeping. Segal allegedly caused money to be withdrawn and disbursed
from the PFTA to Near North and a variety of other persons and entities in
excess of the sum of commissions and other money due the agency, such that over
a period of many years Segal misused and wrongfully withdrew more than $20
million. At Segal’s direction, NNIB used the misapplied funds for a variety of
improper purposes, including to pay salaries and expenses, both business and
personal, for himself and others, and expenses associated with business
acquisition and expansion and general operating funds for Near North and others.
The mail fraud and insurance fraud counts allege that Segal caused Near North to
make false material statements to the Illinois Department of Insurance to
conceal the fraud. He also allegedly defrauded customers by mailing them
misleading and inaccurate statements to create the false appearance that the
accounting procedures of NNIB were being conducted accurately and in good faith.
He then misappropriated the credit balances of customers’ accounts for his own
personal use and for Near North, the indictment alleges.
As part of the fraud scheme, Segal allegedly established and engaged in a
practice of giving certain individual and business customers discounts and
rebates on insurance premiums even though he knew that they were being financed
in part by withdrawals from the PFTA while it had a deficit balance. Segal also
caused to be maintained from time-to-time records of a so-called VIP List of
customers to whom he would give discounts or rebates.
The government is being represented by Assistant U.S. Attorneys Dean Polales,
Virginia M. Kendall and William R. Hogan, Jr.
If convicted, racketeering carries a maximum prison term of 20 years in prison,
while each count of insurance fraud carries a maximum of 10 years, and each
count of mail and wire fraud carries a maximum of 5 years, and all counts carry
a maximum fine of $250,000. As an alternative fine, the Court may order a fine
totaling twice the gross loss to any victim or twice the gain to the defendant,
whichever is greater. The Court, which also must order restitution, would
determine the appropriate sentence to be imposed under the United States
The public is reminded that an indictment contains only charges and is not
evidence of guilt. The defendant is presumed innocent and is entitled to a fair
trial at which the United States has the burden of proving guilt beyond a
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