National Prearranged Services, Inc.

Case fact
Six officers and employees of National Prearranged Services Inc. were sentenced November 14, 2013 to prison for their roles in a $600 million scheme to defraud customers. From 1992 until 2008, NPS sold prearranged funeral contracts in several states, including Missouri, Illinois, and Ohio. During that time, insurance companies affiliated with NPS issued life insurance policies related to those prearranged funeral contacts. As part of the contracts, the total price for funeral services and merchandise for an individual was agreed upon, and that price would remain constant. Customers entering into prearranged funeral contracts would pay a single sum of money up-front to NPS. NPS represented to individual customers, funeral homes, and state regulators that funds paid by customers under the prearranged funeral contracts would be kept in a secure trust or insurance policy as required under state law. Court documents disclose, however, that NPS made use of funds paid by customers in ways that were inconsistent both with its prior and continuing representations and with the applicable state laws and regulations. Instead, NPS 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’s officers and others. In turn, new business became the source of funding for funerals that prior customers had previously paid for in advance. Victims of the scheme include individual customers, funeral homes and state insurance guarantee associations across the country.

Ethical issue
Is it right or wrong to utilize customer’s funds for self-interest? Obviously, the company’s utilization of the customer funds, which should be keep safe in bank trusts or insurance polices is wrong and