Pre-Paid Funeral Service Was 'Ponzi-Like Scheme,' Federal Prosecutors Say

PHOTO: A coffin in seen in a viewing room in a funeral home.Getty Images
A coffin is seen in a viewing room in a funeral home.

An alleged former officer in a pre-paid funeral scheme that may have bilked 150,000 people out of $600 million pled guilty to being involved in the sale of prearranged funeral contracts and the misappropriation of insurance premiums intended for them.

Sharon Nekol Province, 69, pled guilty in a plea bargain yesterday before U.S. District Judge Jean Hamilton. The U.S. Attorney's Office in the Eastern District of Missouri said Province faces up to three years in prison for her role in one of the largest frauds ever prosecuted in the Eastern District of Missouri.

From around 1992 to 2008, National Prearranged Services Inc. sold prearranged funeral contracts in states including Missouri, Illinois and Ohio. Customers typically paid a single sum of money up-front for the contract. Insurance companies affiliated with the company issued life insurance policies related to the contracts. National Prearranged Services informed customers the money would be kept in a secure trust or insurance policy as required under state law.

Instead, the company "operated as a fraudulent Ponzi-like scheme, where customer funds were neither kept safe in bank trusts or insurance policies but instead were utilized for unauthorized purposes and the personal enrichment of NPS' officers and others," the U.S. Attorney's Office said in a statement.

"In turn, new business became the source of funding for funerals that prior customers had previously paid for in advance," the U.S. Attorney's Office said.

Millions of Americans have signed contracts to arrange their funerals and prepay some or all of the related expenses and some states have protections for these consumers, according to the Federal Trade Commission.

"But protections vary widely from state to state, and some state laws offer little or no effective protection," the FTC said on its website about planning funeral services. "Some state laws require the funeral home or cemetery to place a percentage of the prepayment in a state-regulated trust or to purchase a life insurance policy with the death benefits assigned to the funeral home or cemetery."

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Diane Dragan, a public defender who with Joseph Green represents Province, says her client was not a major player in National Prearranged Services, and there were many companies and people involved. The trial date for all other defendants is Aug. 5.

Province declined to comment through Dragan.

National Prearranged Services stopped selling funeral policies in 2008 as several states, including Missouri, investigated the company, the St. Louis Post-Dispatch reported. That year, the Texas Department of Insurance forced the company to liquidate.

Province started as an administrative secretary at the company then held titles as president, vice-president, and secretary of National Prearranged Services and vice-president of its affiliate Lincoln Memorial Life Insurance Company.

"The plea agreement acknowledges that regardless of all the titles Ms. Province held in the company, she was not a primary decision maker in the operation of business and had minor participation in the offenses," Dragan said. "There were a variety of unindicted co-conspirators who, in our opinion, were more culpable than Ms. Province also."

Province and her attorneys also dispute the $400 million to $600 million in lost customer money that the U.S. Attorney's Office estimates.

Province's sentencing agreement is scheduled for Nov. 7. Dragan said the plea agreement allows Province to ask for probation.

"I think it's a fair resolution in light of Ms. Province's age, her poor health and her involvement in the company," Dragan said. "She's 69 years old, in remission from cancer with severe arthritis and had knees replaced recently."

Federal regulators take a dim view of prepaid funeral plans.

"You may wish to make decisions about your arrangements in advance, but not pay for them in advance," the Federal Trade Commmission said. "Keep in mind that over time, prices may go up and businesses may close or change ownership. However, in some areas with increased competition, prices may go down over time. It's a good idea to review and revise your decisions every few years, and to make sure your family is aware of your wishes."

The FTC advises that consumers interested in pre-paying for funeral services ask appropriate questions before signing a contract. These include, what will happen to the money that is pre-paid, its interest income and whether it will be put into a trust account. The agency advises that you make sure you are protected if the firm you are dealing with goes out of business or move away.