Customers fear loss of funeral prepayments

Thousands prepaid for Md. funerals could be lost

January 27, 2007|By Matthew Dolan | Matthew Dolan,Sun reporter

The Parkville couple didn't want to burden their children.

A retired sheet metal worker and his stay-at-home wife, Thomas and Dolores Amig, walked into Stella Funeral Home in Baltimore last year and agreed to shell out more than $7,000 to cover Dolores' future funeral. Owner Paul Stella demanded full payment and, to the Amigs' surprise, came to their home the next day to pick up the trust fund check.

With the news this week that the state suspended Stella's operating license and the FBI raided his offices as part of a fraud investigation, the couple in their 70s don't know whether their money has been stolen.

Federal authorities are talking to possible victims, and bank officials have promised to help.

In court papers, federal agents said they believe that up to 140 people might have had their prepaid funeral accounts - once worth more than $550,000 - improperly emptied by Stella and his employees. The allegations mirror multimillion-dollar schemes recently uncovered in several states where funeral home and cemetery owners have been accused of raiding customer accounts for their own gain.

"I was happy about it," Dolores Amig said of paying her funeral in advance at Stella's. "And now, gosh, I don't know about this. What kind of friend is he?"

The state Board of Morticians, which suspended Stella's license in November, is now pushing for new customer protections in the wake of the FBI investigation. Licensed funeral directors and morticians, for example, would have to present a notarized letter or death certificate before removing any funds from a prepaid account under the proposed regulations.

In Maryland, so-called "pre-need" customers at Stella's said in interviews that they spent this week calling the FBI and the Madison Bohemian Savings bank, where their prepaid accounts were, but got little information about their individual accounts.

Bank President Lawrence Williams tried to assuage concerns this week, declaring that "no customer of the Bank will incur any loss."

But his prepared statement also raised questions about which financial institution would be responsible for recouping any money. According to court papers, Stella is accused of secretly depositing his customers' refund checks from the closed Madison Bohemian accounts into Bank of America accounts, a point that Williams' statement highlighted.

"Under Maryland law, any subsequent bank that dealt with the funeral home may ultimately be liable to the customer, in the event of wrongdoing," the statement said. "That would not be Madison Bohemian, but any bank where the funds may have been transferred or the checks cashed or deposited."

According to FBI investigators, Bank of America, which handled Stella's personal and business accounts, accepted the endorsed checks that Stella brought from Madison Bohemian "because they trusted Paul Stella."

"They further stated that they accepted the purposed endorsement of the payee on the bank checks even though they had no signature to compare it against," the FBI wrote in papers filed in U.S. District Court in Baltimore.

Stella, who is under investigation but has not been charged with a crime, did not return phone calls left with his funeral home's answering service and his attorney.

The number of people who pay for their funerals ahead of time is significant and growing. Funeral directors often promote the practice as a responsible way for elderly clients to plan ahead, lock in current prices by guaranteeing services and pay the cost of their funerals without burdening their families.

Industry watchers estimate that as many as one-third of all funerals held today are prepaid.

But the AARP recommends that its 35 million members over age 50 steer clear of prepaid funerals. Other consumer advocates agree, cautioning that a patchwork system of laws across the states fails to protect customers who dole out funds years before their deaths.

"In terms of potential fraud issues in the industry, prepaid funerals remain up near the top," said Joshua Slocum, executive director of the Funeral Consumer Alliance, which endorses setting up personal accounts outside a funeral home for burial or cremation arrangements.

He cited Tennessee regulators who recently accused Clayton Smart, a gas and oil speculator in Oklahoma, of illegally diverting more than $20 million from funeral homes and cemeteries in the state.

In Michigan, the 28 cemeteries bought by Smart in 2004 were seized by state regulators in December and are now operated by a court-appointed conservator. State authorities said they are investigating Smart's handling of $61 million in trust funds belonging to Michigan cemeteries.

In a separate case, a Missouri funeral home director in 2004 reported the death of at least 30 of his living customers as a way to collect $300,000 from insurance policies that backed their prepaid funeral contracts.

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