After More Than $700,000 Disappeared, They Launched the World's First Embezzlement Insurance
These entrepreneurs invented a product to protect business owners from the next Bernie Madoff -- or any other crooked financial advisor.
One summer day in 2007, Suzanne Foglio made a discovery no one wants to make: Her partner had been stealing company money to use for personal expenses. She'd later find out that his embezzlement amounted to more than $700,000 over the course of three years.
Foglio, her husband Jim, and a third partner were running a payroll business, Kaibobo, as a side venture of the couple's health insurance company. The year before, she had received a tip from a friend and manager at Kaibobo: The finances didn't look right, the books were a mess and the Foglio's third business partner might be to blame. Every time Foglio called a meeting with the partner, she recalls, he'd explain away the discrepancies or promise to follow up with more information and fail to deliver. Months later, while the partner attended a payroll convention in Las Vegas, Foglio decided to pursue the answers for herself by taking a meeting with the company bookkeeper. Across the desk, she recalls, he told her of the partner's missteps: using the company checking account as his personal account. Writing a $50,000 check "payable to cash." Buying a new kitchen for his house with company money. Buying a new house! Foglio felt physically ill.
"There's so much shame and embarrassment when you're a victim of embezzlement," Foglio said. She and her husband took drastic measures to keep clients at both companies from finding out about their partner's misdeeds, including taking out a $700,000 personal loan, refinancing their home and selling their stock options.
The incident cost them their own money and peace of mind, but as decades-long veterans of the insurance industry, they knew a hole in the market when they saw one. In January 2019, the Foglios and a new partner -- Travus Pope, who had hundreds of thousands of dollars embezzled from him -- launched the world's first embezzlement insurance: Capital Shield Insurance Services.
What to do when you suspect embezzlement.
When you discover someone may be embezzling from you, the first thing you'll likely do is call an attorney. Foglio's corporate lawyer charged about $500 an hour, and although she and her husband had a significant nest egg, she knew this was the beginning of a long, drawn-out court battle. The next step: law enforcement. After reporting the incident, the prosecutors' office told the Foglios they'd need to prove it. She hired an accounting firm to do a forensic audit and chart their partner's alleged crimes via recreated bank statements. It took three years to come up with the proof they needed, resulting in her former partners' indictment and conviction. He served a year and a week in jail.
Even if an embezzler is convicted, there's no guarantee you'll recover the stolen funds. The courts can award a judgment against the person, but there's no automatic wage garnish or other steps to certify your repayment -- instead, you'd likely need to hire a specialized law firm to make sure the embezzled money is returned. Capital Shield's policy costs $1,500 per $1 million per year, and eligible insurees must have between $1 million and $10 million in invested assets. As soon as an insuree suspects embezzlement, they contact the insurance carrier, which then investigates on their behalf and pays out the claim after an indictment.
There's a caveat here: The policy covers any investment advisor registered with the Financial Industry Regulatory Authority (FINRA), but it doesn't cover business partners or anyone else with access to company funds -- meaning even the Foglios' own insurance product couldn't have protected them from their former partner's embezzlement. They're hoping to work up to expanded coverage.
"We would hope that within the next five years," said Foglio, "that would be something that we'd be able to do."
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