Quaker Life Navigation: ---- Select a Subtopic ---- Quaker Life Home Advertising Information Subscriptions Invitation to Writers E-mail quakerlife@fum.org Meeting Directory

A Conspiracy Among Friends

Quaker Investment and Insurance Fraud

By Earl L. Conn

The pastor of Fairmount Friends Meeting was home from the hospital, beginning her recovery from a complete mastectomy, when the phone rang.

David Brock, superintendent of Indiana Yearly Meeting, was calling with very bad news.

National Friends Trust (NFT), an insurance company covering many Friends' pastors and workers-including Pastor Jackie Michaelson Painter of Fairmount, Ind.-was going out of business.

"I remember David advised me to continue filing all my insurance forms through the hospital and the doctor's office and that the yearly meeting would do all it could to help," Michaelson Painter recalled in an interview. "Of course, no money was ever received from the insurance company. I wanted to keep my good credit rating so I began making monthly payments, ultimately paying almost $4,000 before Indiana Yearly Meeting came through. I believe the hospital offered a good discount to help the yearly meeting pay off the bills."

Michaelson Painter, along with other pastors and workers in Indiana Yearly Meeting, has had to find her own insurance since then, even though "David tried very hard to work something out with several other companies, but no one was interested in us." Married on Dec. 26, 1996, and planning a wedding trip in late January 1997, she had a thorough physical before her wedding. Although the physical detected a lump in her breast, her doctor was "99 percent sure it was okay."

"Unfortunately, I learned in early January that I was in the other one percent who were not okay. Then my husband had a fatal heart attack on Jan. 11. So, on the day we were to have left on our wedding trip, I went ahead with surgery since all pastoral arrangements had been made at the meeting. Then I got home and had the call about the insurance being canceled."

A year later, Michaelson Painter continues to serve Fairmount Friends. "Today I am covered by the Indiana Comprehensive Pool. It's a state program to help people like myself who are considered high risk. No other insurance company would even talk to me once they knew of my pre-existing condition. The premiums are high and my deductible is $2,000, but at least I have insurance," Michaelson Painter said.

Michaelson Painter was one of 1,757 Friends-according to a government tally-who were left without insurance and with bills unpaid when National Friends Trust notified its customers in a letter dated Jan. 28, 1997, that it would cease operations one month later.

The letter was signed "National Friends Trust" but in the body of the letter "It is with great sadness that I take this action after years of NFIT benefiting so many," the "I" apparently is a reference to the Trust's president, Philip E. Harmon. The letter also said Friends would have "75 days thereafter to submit for payment claims that were incurred under the plan."

The insurance company had served Friends for 25 years with few problems until recent times. One Friend noted "a noticeable slowdown in payments" during 1996. Checks began to arrive two months after they had been dated. By late 1996, numbers of questions about NFT were being raised.

The insurance program had been created Sept. 1, 1972, when a "Trust Agreement" was entered into by Friends United Meeting and the National Friends Insurance Trust, as it was then called. (See sidebar, "Selling Trust, Pleading Guilty: A Timeline of the Harmon Story.") The agreement was signed by the original three trustees, Harmon, Jack Willcuts of what was then called the Evangelical Friends Alliance, and Lorton G. Heusel, general secretary of Friends United Meeting.

Willcuts died in 1989. Heusel left FUM in 1978. In an interview, Heusel said he assumed his trusteeship ended then. Current trustees are Harmon; Philip Steven Harmon, Harmon's son; and Terrill Beebe, Harmon's son-in-law. Heusel, now retired, remembers that the trustee relationship was created in 1972 "to satisfy the regulations for forming a trust."

"We wanted an insurance program to provide portability that would allow coverage across all Quakerdom. Phil came up with the idea and developed it. It was processed through the FUM committee structure and approved by the executive committee and the board." Heusel recalls that Harmon had been a trustee of George Fox College and that Willcuts, who also was from the area, would not have supported the plan or become a trustee if he had doubted Harmon's credibility. He said he could not remember "any communications, maybe one" from the Trust during his years as a trustee from 1972 to 1978. "Phil's wife, Vel (Velda), really operated it for many years. She appeared to be very reliable. She pretty well handled all the details. There were few complaints that I received or heard about. I think that whatever went wrong probably had something to do with her death." (Velda Harmon died of a heart attack in the mid-l980s.)

Heusel said one example of the Trust working well occurred as late as 1991 when he went to an overseas assignment. Because he would be outside the continental United States, he could not obtain Medicare coverage. Harmon made arrangements to keep him on the plan during Heusel's three-and-a-half years in Africa.

Others recall Harmon as having "an air of arrogance," "liked to be impressive," "an appetite for money and living the good life," and in recent years, one about whom "there were red flags that we should have paid attention to." An article in the Seattle Post-Intelligencer on Aug. 29, 1997, reported, "From outward appearances, Philip Harmon led the good life of a successful businessman. As scandal was breaking around Harmon earlier this year, he had a waterfront home on Camano Island with a view of the snowcapped Cascades and a collection of antique cars."

One of the first Friends to question NFT's operations was Leatha Hein of Wichita, who in 1995 was a trustee of Mid-America Yearly Meeting and acting treasurer. "I realized in my volunteer job as treasurer that the premiums being paid to NFT were way too high and going up and up-they were astronomical. Some pastors were paying $200 a month more than they should to get other good insurance. Then I began to hear about people not having their claims paid," she said.

"Finally we got our information together and brought it to the floor of the yearly meeting along with having representatives there from MMA, a Mennonite insurance company with a long, proven record. That's when we withdrew from NFT. I tried to alert some others but they didn't seem too interested," she recalls.

In a Dec. 18, 1996, letter to Friends United Meeting-41 days before closing NFT down-Harmon also threatened an assessment against Friends' organizations to stem the tide of other withdrawals. This was an assessment that NFT apparently had no legal authority to impose. "If groups terminate their relationship with the Trust, the fallout could be that there would be an inadequate amount of dollars to meet the necessary obligations," Harmon wrote. "This would cause the assessment clause of the Trust document to be activated, which could necessitate a pro-rating charge to each member group of the Trust."

A copy of the Trust Agreement had been sent earlier that year by Trustee Beebe to FUM after several requests. It does not appear to contain the "assessment clause" Harmon cited. Shortly after the 1997 letter announcing the Trust would cease operations, one Friend close to Harmon advised FUM to "get an attorney and get him quick," saying that "Phil has freely moved money from one fund to the other" and it had been necessary "to confront him on several occasions." He said Harmon made all the decisions personally and kept the details of the Trust "very much to himself."

Johan Maurer, FUM general secretary, sent a flurry of letters to NFT in an attempt to gain information about questions that were surfacing in 1996 and 1997. On Nov. 14, 1996, he asked for "explicit explanations and documentationsuch [as]a balance sheet of the National Friends Trust, listing assets and liabilities, and details on where funds are held pending claims."

An earlier request for this information had been written Oct. 16, 1996, and another letter followed on Dec. 6, 1996. E. Jay Hereford, a Seattle attorney employed by FUM and several yearly meetings, on Feb. 21, 1997 forwarded one-page balance sheets he obtained for 1995, 1996 and 1997 through Feb. 19, 1997. Attempts to set up a 1997 face-to-face meeting between FUM representatives and Harmon never came to fruition. At a September 1996 meeting and in telephone calls, Maurer said, Harmon assured him nothing was wrong with the insurance plan, "despite his clear knowledge that this gave a completely false impression."

According to government charges filed Sept. 29, 1997, "beginning sometime in 1989, Philip E. Harmon and his co-conspirators stopped purchasing health insurance from licensed insurers and began operating an illegal, unlicensed health insurance company." They "failed to pay legitimate claims for medical services...but caused checks to be issued to medical providers and then failed to mail these checks and retained them in the offices of Harmon & Associates."

Further, Harmon and the co-conspirators "did not invest the enrollees' 'excess' money in secured investments, but rather used the money to pay operating expenses of their various entities, to support luxurious life styles, to pay themselves substantial salaries, to purchase real estate for their personal use and benefit, to acquire collections of costly hobby cars, and to pay off investors who demanded refunds or interest payments."

When Harmon pleaded guilty in U.S. District Court in Seattle to conspiracy and fraud Oct. 31, 1997, he admitted to committing frauds far beyond the scope of National Friends Trust. The charges, according to a Seattle Post-Intelligencer article, included conspiracy, obstruction of justice, witness tampering, money laundering and taking money obtained through fraud across state lines.

Harmon was charged with obtaining more than $14 million from some 230 people for investments. Another newspaper article estimated $26 million in premiums for health care programs affecting as many as 6,500 people were also part of the fraud. Many of those defrauded were individuals but also included organizations like the Queen Anne United Methodist Church of Seattle which invested more than $200,000 with Harmon. Federal prosecutors said they took the unusual step of charging Harmon in late August 1997 before their investigation was finished because they feared witness tampering and that assets would disappear, according to the Post-Intelligencer.

Earlier in the year, Harmon's public defender, Paula Semmes Deutsch, on Feb. 25, 1997, sent a letter to "the family and friends of Phil Harmon" soliciting letters on Harmon's behalf to be presented to the federal judge before sentencing.

Twenty-one persons, including Harmon's second wife, Esther, co-signed another letter dated May 15, soliciting additional letters. In part, their letter said, "It is of paramount importance that the court and prosecution become familiar with the qualities and values of Phil which have attracted and drawn so many friends and acquaintances from a large circle of associations. He is living with personal insolvency and business bankruptcy, including the loss of their home, loss of dignity and loss of respect by some. At the same time, however, he is the recipient of a generous outpouring of individual sympathy and solace even by many who have every reason to be his most vicious attackers."

Federal prosecutors are still working on the cases. Unsealed documents refer to "confederates and co-conspirators" and the assistant U. S. attorney has referred to "as many as six" other possible indictments. Meanwhile, Harmon remains free on bond following his Oct. 31, 1997, guilty plea. His sentencing-now scheduled for May -could reach eight years in prison. A court-appointed receiver is attempting to determine what funds exist and how whatever is found can be used to repay victims. A pre-sentencing report, which can take from 60 to 90 days, also is being prepared.

"I feel terrible about the negative impact on the Christian community," Harmon said in an interview with Quaker Life. "I am remorseful and sorry and apologetic and ask forgiveness for bringing the negative publicity on the Christian community, particularly Friends. There is so much more to the situation." Harmon had no other comment, and his son, Steve, had no comment at all.

So why did Friends fail to see or respond more quickly to the dangers and end up defrauded? Heusel was asked: If the insurance plan were created today and he were named a trustee, would he approach his responsibilities differently?

"Be more attentive? Yes, in today's climate I would," he said. "But even on college boards, you pretty well have to take the word of those in charge. I'm not a CPA and I'm not sure I would know whether or not the books had been tampered with, especially if someone were really clever.

"These things have to be seen in perspective. There would be no way really of knowing, even going into the 1990s, that Harmon was going this way. But I understand that if you're a person who lost your insurance, that would be tough and you would see it a different way."

Another view is offered by Brock, a leader in following through on the NFT investigation and finding new insurance for Friends left adrift. Brock also was treasurer of the Fifth Friends Ministers Conference, which became involved with Priscilla Deters' Productions Plus (see sidebar, "A Hard Look at Gifts," page 6). He believes these problems say something about Quaker business practices in the '90s.

"It's obvious trustees need to follow through on what the documents call for. Harmon had both audit and financial committees in the Trust documents, but apparently they never functioned. We need to be more insistent about following our own rules. If we don't, then the next thing you know there is some slippage here and slippage there and the 'dark side' of a person comes out.

"It's important to understand also that this insurance money which has disappeared hasn't been taken from Friends' organizations; it's been taken from widows and children. They are the ones who have suffered here." Brock pointed out that, at one point, NFT unpaid liabilities approached $1 million with medical bills of more than $500,000, pharmacy bills in excess of $100,000 and hospital bills of more than $200,000.

"If we had been responsible for all the claims that Harmon said we could be assessed for, it would have bankrupted Quakerism," Brock said. Previously insured Friends have responded today, Brock said, by obtaining new yearly meeting plans while others have purchased individual plans, as is the case in Indiana Yearly Meeting.

Friends United Meeting "cobbled together insurance from February until October 1997," when an insurance program was worked out with Starmark, Maurer said. Brock recalls that the NFT problem became obvious when checks were received that had been dated one or two months before they were mailed and other checks bounced. "Most of us wouldn't have answers for real con men. They are not stupid. They have answers for everything. They pretend to be generous." So, should we be gentle as doves but wise as serpents? "That's not a bad question," Brock replied.

back to top

Copyright (c) 1998 Friends United Meeting
Return to March1998 Contents page