Equity Funding Scandal

THE EQUITY FUNDING Corporation of America was a life insurance company capitalized in 1960 with a few thousand dollars, which by 1973 claimed assets of $1 billion making it the first white-collar crime to break the billion-dollar mark. The Equity scandal illustrated there is almost no limit to the dollar amounts that can be fraudulently obtained and can go undetected for over a decade.

Equity fabricated non-existing assets and sold them. To understand how the scheme worked requires noting certain practices in the insurance industry. Insurance companies buy and sell policies they issue to other companies, which is called reinsurance. This spreads risk evenly over all companies so, in the event of multiple claims, they do not fall too heavily on one insurer. For example, consider ...