ST. LOUIS • Almost seven years after the collapse of a Clayton-based company selling prepaid funerals, civil claims regarding a $500 million fraud with tens of thousands of victims finally reached trial this week.
Executives found criminally responsible for fraud committed by National Prearranged Services Inc. were sentenced some time ago to federal prison terms, and were ordered to pay restitution from funds presumably long gone.
Some trustees have settled out of court — or are arranging settlements now — for amounts not disclosed.
So the remaining portion of the suit in U.S. District Court here, which reached opening statements Thursday morning, is primarily against National City Bank and PNC Bank, as successors to Allegiant Bank, a former trustee for the operation. The other defendant, Forever Enterprises Inc., is defunct.
NPS promised customers across the country that money they paid for prearranged funeral contracts would be held in trust. Missouri law required NPS to hold at least 80 percent.
Claims were supposed to be funded by life insurance policies payable to the trust. But federal authorities found that company officers and others spent some of the money on lavish lifestyles instead. Cash from new contracts was diverted to pay costs that should have been covered by trusts.
Over 97,000 victims — customers, funeral homes, insurers and financial institutions — lost money, officials said.
The NPS owner, James “Doug” Cassity, as well as two other officers, an employee, the company lawyer and a former investment adviser, were sent to federal prison in 2013, for terms ranging from 18 months to 10 years.
Four, including Cassity, were ordered to repay $435 million in restitution.
The lawsuit was filed in 2009 by state life and health guarantee associations and a special receiver set up to wind down NPS and two related life insurance companies. The action seeks compensation from the trustees, as well as the Cassity-controlled Forever Enterprises.
In thousands of pages of legal filings and more than 2,200 entries in the court docket, the plaintiffs accuse trustees of negligence and breaching fiduciary duty. The suit says trustees failed their obligation for due diligence and did not learn that Cassity was a convicted felon or why NPS was replacing trustees that questioned the arrangements.
Trustees allowed and helped company officers siphon away money and failed to warn successor trustees of the red flags, the documents allege.
A pre-trial brief says “almost all of the money in the trusts” was put into policies issued by life insurance companies the Cassitys owned.
Beginning in the early 1990s, liabilities exceeded trust assets, the plaintiffs say, and NPS could pay for funerals only by using money from new contracts.
The trustees reaped fees and benefit of the Cassitys’ other banking business, the suit claims.
But Stephen Raber, one of the lawyers representing PNC and National City, told jurors Thursday that “Allegiant did not cause the damages” and could not have stopped what happened. “The fraud went undetected by everyone for 15 years,” he said, because the “NPS criminals” hid it.
Raber pointed out that three of the criminal defendants were convicted of fraud for taking out policy loans without Allegiant’s knowledge. He also said NPS collapsed four years after Allegiant stopped being a trustee.
NPS had outsourced oversight of the trust’s investments, a common practice allowed by Missouri law, National City lawyers said in a pre-trial brief.
Under that arrangement, Allegiant had “’no duty to inquire into or participate in the performance’ of the investment advisor’s duties unless the trustee has ‘actual knowledge’ that the advisor is breaching its fiduciary duties,” they said.
Three of those found guilty of NPS-related crimes remain in federal prison.
In November 2013, Cassity, now 68, of Clayton, was sentenced to nine years and seven months in prison. His son, Brent Cassity, 47, also of Clayton, was sentenced to five years. David Wulf, the former investment adviser, got 10 years.
Former chief financial officer Randall K. Sutton, 69, of Chesterfield, received seven years, but died last month. Longtime employee Sharon Nekol Province, 71, of Ballwin, got 18 months and is now in a halfway house. A company lawyer, Howard Wittner, 77, of Chesterfield, was sentenced to three years but was released in October due to health problems.
All had pleaded guilty except Wulf, 62, of St. Louis County, who was convicted at trial of 18 counts, including bank fraud, wire fraud and conspiracy.
The Cassitys and Sutton pleaded guilty to charges including mail fraud, wire fraud and money laundering. Wittner pleaded guilty to two counts of making false statements intended to deceive insurance regulators, and to willfully permitting a felon to engage in the insurance business. Doug Cassity had a previous conviction for investment fraud.
Province pleaded guilty to six counts of mail fraud, wire fraud and misappropriation of insurance premiums.
The civil case jury selection began Monday, and lawyers gave opening statements Thursday. The trial is expected to last as long as seven weeks.