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Cloquet man pleads guilty to fraud

A Cloquet investment and insurance advisor pleaded guilty last week to insurance fraud and theft by misrepresentation and agreed to pay $110,000 in restitution to the client he is accused of defrauding.

A Cloquet investment and insurance advisor pleaded guilty last week to insurance fraud and theft by misrepresentation and agreed to pay $110,000 in restitution to the client he is accused of defrauding.

Steven William Schmidt, 57, pleaded guilty in Carlton County Court Wednesday, Sept. 4, via an Alford plea - essentially admitting that a jury would convict him based on the evidence, but not actually admitting to committing the crime.

Schmidt had conducted business under multiple names, including Schmidt and Associates, Schmidt Consulting LLC and Schmidt Wealth Management. The most recent business was Safe Money Solutions, LLC, located on the 600 block of North Road in Cloquet. According to the Better Business Bureau website, Safe Money Solutions offered financial services for post retirement, estate and annuities.

The Minnesota Department of Commerce began investigating Schmidt in October 2012, following a complaint from a client of Schmidt’s who said he had advised her to withdraw money from her annuities between 2004 and 2008, claiming he would use the proceeds for other retirement investments.

According to the criminal complaint, in November 2007, three different “request for annuity” policy fund forms - adding up to $42,403 - were sent to Allianze Life Insurance Company. About a week later, a check for $39,258 was made out to Schmidt Consulting from the client’s account, a check she said she thought Schmidt completed but she signed.

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According to the complaint, when Department of Commerce Fraud Bureau Detective Special Agent Brandon Johnson examined Schmidt’s bank records, he found no record the $39,258 was invested for the client. The detective also found several instances in which funds appeared to be used for personal reasons: a $30,000 transfer from Schmidt’s business to his personal account on Nov. 28, 2007, one day after checks made out to “Cash” were written from Schmidt’s personal account in the amounts of $25,000 and $1,000. A week later, on Dec. 6, 2007, a check to a car dealer for $7,925 and a check for $11,150 in cash drafted from Schmidt’s business account.

In continuing the investigation, according to the amended criminal complaint, Johnson discovered two other occasions when the client wrote checks to Schmidt after receiving funds from insurance annuity policies. Schmidt allegedly took those funds - $20,000 on Oct. 15, 2007, and $35,000 on Nov. 15, 2008 - and, instead of investing them on his client’s behalf, spent them.

Schmidt was initially charged with one count each of felony theft by swindle and felony theft by false representation, then three additional charges of insurance fraud were added to the case.

Although the state investigated the case, Carlton County prosecuted the crimes. The case was set to go to trial this fall, but the two sides reached a plea deal which was finalized in court last Wednesday.

Schmidt pleaded guilty to one count each of theft by false representation and insurance fraud, both felonies.

“Mr. Schmidt used a position of trust and authority as the victim’s financial professional to take her money,” Carlton County Assistant Attorney Jeffrey Boucher said. “The County Attorney’s Office cooperated with multiple agencies to investigate and prosecute this case so he won’t be in that position again.”

Boucher explained whether an Alford plea is appropriate or even a possibility depends on the type of offense and the facts of the case. The parties have to agree to proceed that way and court has to accept proceeding with an Alford. In certain cases, particularly with sexual assault cases and other cases where the specific admission of wrongdoing is of the highest importance, [the prosecution] won’t agree to proceed with an Alford.

“In this case we consulted with the victim who agreed this was an appropriate outcome,” Boucher said.

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Boucher said Schmidt will have a cap of 120 days to serve by electronic home monitor and has agreed to pay $110,000 in restitution.

The Department of Commerce previously held a separate licensing hearing regarding the allegations, which already resulted in Schmidt losing his insurance producer license for the state of Minnesota.

According to the public records of the November 2013 Department of Commerce hearing, Schmidt told his attorney that the funds were a loan from his client to him. The client testified that the money was not a loan.

Minnesota law states that insurance agents should not solicit or accept a loan from someone they’re doing business with, unless the agreement is in writing (and records kept for six years) and is lawful.

In that hearing, Administrative Law Judge Barbara Case ruled that Schmidt violated Minnesota law “when he either took a loan from [the client] in violation of Minnesota law or converted her funds to his own use.”

“For the same reason and based on the same facts, Respondant violated Minn. Statute 60K.43(8) by using fraudulent, coercive, or dishonest practices and demonstrating untrustworthiness and financial irresponsibility involving the business of insurance in Minnesota,” Case wrote.

The end of the criminal case in Carlton County isn’t the end of the proceedings against Schmidt.  There is a civil trial set in Wisconsin stemming from this case in late September as well as licensing actions which have taken place in Wisconsin as well.

Schmidt’s sentencing is scheduled for 1:30 p.m. Sept. 22 in Carlton County Court.

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