With her office in Marty Frankel's sprawling Connecticut estate, Kaethe Schuchter emerged as his top lieutenant, helping him steal millions of dollars while living in a $5,800-a-month New York apartment and wearing Versace clothes.
When Frankel fled the country with the FBI on his trail, she advised him over the Internet about where to hide in Rome.
"You have to have faith, and do not despair," she assured him in an e-mail.
But faith alone didn't sustain the 48-year-old financier from Toledo. In the past three years, he was arrested, along with every major associate except for one - Kaethe Schuchter.
Believed to be hiding in Europe with up to $2 million, she remains the lone fugitive in a soap-opera crime that inspired two books, a congressional investigation, and calls for sweeping changes of the insurance industry.
Nine defendants have pleaded guilty, with six to be sentenced this year, including Frankel.
“She's the one who got away,” said John Schulte of Toledo, whose former wife, Sonia Howe, will be sentenced in October for her role in the case. “The question is: How much money does she have?”
Indicted on federal conspiracy and fraud charges in Connecticut in 2001, Ms. Schuchter, 36, was last believed to be in Italy or possibly Germany, according to a U.S. warrant report.
Interpol, the international police agency has been alerted to watch for the woman accused of receiving money and diamonds from Frankel before his downfall in 1999.
The search for the slender German national is the latest segment in the largest insurance fraud in U.S. history.
With the help of the once-struggling artist and others, Frankel is accused of looting $215 million from the cash reserves of seven insurance companies - the money belonging to policy owners.
Ms. Schuchter helped to conceal the thefts through the purchase of traveler's checks, and an elaborate shell game of moving the funds into brokerage and bank accounts - some as far away as Switzerland, says the FBI.
Frankel, a Toledo native and son of a prominent court magistrate, pleaded guilty in May to 24 counts of fraud, racketeering, and conspiracy. He is set to be sentenced in New Haven, Conn., in May.
Prosecutors said he agreed to help them recover whatever money is left from the theft case, which began in Toledo in 1990 and ended with his arrest in a German hotel in 1999 with nine fake passports and 547 diamonds.
But lawyers say the person who could help recoup the $120 million still missing has eluded U.S. law enforcement agencies.
A former art student who moved to New York in the 1980s, Ms. Schuchter was known in the Frankel empire as “the dragon queen” and “the boss,” a house manager who oversaw the most intimate details of her employer's life, according to interviews and public records.
While much has been reported about Frankel's inner circle, the role of Ms. Schuchter may have been the most critical in perpetuating the fraud in its last two years, say people familiar with the matter.
“She was involved in everything - his business, money,” said Cynthia Allison, 38, a former Frankel employee and government witness.
Ms. Schuchter's job went beyond his businesses to screening his girlfriends and even making sure his private chefs prepared his food to his satisfaction.
“She was the boss,” recalls Robert Randolph, a chef who worked in Frankel's mansion in 1998. “I always got along with her, but a lot of people were afraid of her. She could be very direct.”
Fiercely private, she refused to allow her picture to be taken, but was often seen at the trendiest Manhattan clubs.
Though as many as 50 people worked for Frankel, the red-haired assistant rose to “lieutenant” status, according to lawsuits, providing the introductions he needed to expand his operations.
Described by others as temperamental, she could fly into a rage, once firing her private driver and then rehiring him the next day.
On another occasion, employees were forced to separate her and a female assistant fighting on the mansion floor.
For three years, her office was on the second-floor of Frankel's estate, where she paid his bills and ordered his stock trades, said former employees.
But until she met Frankel through a personal advertisement in the Village Voice in 1993, she was just another struggling artist hanging out in New York galleries and night spots.
She arrived from Germany in the 1980s when she was 19, but struggled to earn a living selling her artwork in New York, according to the 2002 book about the Frankel case, The Pretender.
She and Frankel dated, but after breaking up, the investor allowed her to become an employee.
“Marty is the one who made the difference” in her life, said Ms. Allison in a 1999 interview.
Frankel had arrived in Greenwich around 1992, shortly after stealing $3.2 million from a Toledo investment fund known as Creative Partners, which he set up in 1990 with his former fiancee Sonia Howe.
The money enabled the duo to buy the first in a string of southern insurance companies and loot the reserves to quietly pay back the Toledo fund.
After moving into a 14-room, brick mansion in the backcountry of Greenwich, he bought more insurers and drained their reserves, eventually looking for ways to replenish the missing funds.
Ms. Schuchter was his conduit.
According to court records and interviews, she moved into New York's posh Metropolitan Tower on West 57th Street, with Frankel paying her rent.
She hired a driver to transport her in a black Mercedes 600 limousine - befitting her new lifestyle - and purchased a wardrobe of designer clothes. She proceeded to provide the reclusive Frankel with contacts in New York society who could be potential investors.
But records show her efforts failed, including enticing the former first lady of Indonesia, Dewi Sukarno, to turn over her assets.
After befriending the 61-year-old socialite, Ms. Schuchter introduced her to Frankel.
Soon, he was proposing that the widow invest in a fund he managed, but she rejected the deal.
Shortly after, she and Ms. Schuchter became embroiled in a fight that has become legendary in the Manhattan social circuit.
The two women showed up at a 1997 Halloween party at a popular club known as Doubles, and began arguing loudly, court records state.
In a New York Daily News column, anonymous party goers were quoted as saying the former first lady of Indonesia grabbed Ms. Schuchter by the hair and slapped her.
Ms. Sukarno ended up suing her former friend in January, 1998, in a case that embroiled Frankel - nearly exposing him at a time his illegal enterprises were peaking.
Ms. Sukarno said the episode was instigated by Ms. Schuchter, who caused the former first lady to be embarrassed.
Later that year, Ms. Schuchter created another scene - this time during a business trip to Italy for Frankel that seriously undermined his ability to expand his empire, say former employees.
With his funds dwindling from high living and expenses, Frankel needed a cash infusion to replenish the insurance reserves, and keep state regulators from asking questions.
He also needed to look for a way to launder millions of dollars he had already stolen and not spent.
In a bizarre scheme, he tried to hide the money by turning to a Catholic charity in Florence, Italy, prosecutors charged.
Wearing a halter top and short pants, Ms. Schuchter tried to entice the priest who headed the Genesis Center with a proposal by her boss.
The deal worked like this: Frankel would donate $50 million to the center if the institution would be willing to purchase insurance companies on his behalf. The priest rejected the plan.
By the next year, Frankel and Ms. Schuchter were constantly arguing, according to Frankel's personal journal, a copy of which was obtained by The Blade.
That day, he threatened to take away a baby grand piano he purchased for her, incurring her anger, he noted.
She “threatens me,” he wrote, adding that her boyfriend, Alfredo Fausti, “will kill me unless I give her piano.”
By then, Frankel's enterprise was unraveling.
Thomas Corbally, a crafty world traveler and New York social figure who was brought into the Frankel empire by Ms. Schuchter, was threatening to turn Frankel over to authorities.
With government regulators in Mississippi suspicious of his activities, Ms. Schuchter and her boyfriend flew to Rome in early May, 1999, according to the FBI.
Then, Frankel tried to send his money overseas.
He arranged with Ms. Schuchter to wire nearly $2 million to an account in Germany controlled by her brother, and another $1 million to her mother, according to Gregory Copeland, a lawyer representing the Mississippi Insurance Department.
Both accounts have been frozen through legal orders, said Mr. Copeland. “To the best of my knowledge, that money's still there,” he said.
Additionally, Frankel wired another $2 million directly to Ms. Schuchter and her boyfriend, Alfredo Fausti, for safekeeping, according to Frankel's journal. To this day, the money has never been recovered by authorities.
At the time, she and her boyfriend were in Rome, trying to help Frankel, who was traveling with two female companions.
On some days, she communicated with Frankel through e-mails - the messages later retrieved by investigators.
But on June 27, her boyfriend broke the news: He was not giving Frankel his $2 million. “Alf tells me all $ is stolen,” Frankel wrote in his journal.
He was devastated.
Ms. Allison, who joined Frankel during his last days as a fugitive, told The Blade in an exclusive interview after his arrest in 1999 that Frankel was never the same.
“He was really upset. He would never see the money again,” said Ms. Allison, who became a government witness. “He talked about it a lot.”
Mr. Copeland, the lawyer representing the Mississippi Insurance Department, said Ms. Schuchter is still being sought by civil authorities.
She was named as a defendant in a 2000 lawsuit to recover the money filed by the insurance departments in Mississippi and four other states.
Questions abound over whether she'll ever be jailed or brought to the United States to answer the charges.
Lawyers trying to recover the stolen money say Ms. Schuchter was last known to be living in Italy, but could be visiting her relatives in southwest Germany, near the Swiss border.
She has never been arrested, according to federal court records in Connecticut. “How do they even know where she's at,” asked Mr. Schulte, whose former wife is to be sentenced in October.
If she's arrested, U.S. officials could face a long court battle to bring her back, said Michael Byers, an extradition expert who teaches at Duke University Law School.
Since she's not an American citizen, “it can complicate matters” depending on the country where she's caught.
“Some countries, like France, will not extradite one of their own to another country in matters of taxes, economic crimes,” he said. But he said Germany's treaty could honor an extradition.
“My guess is that it's possible,” he said, considering the size of the case. However, it could be dragged out on “technicalities.”
Mr. Schulte says the Frankel case will “never be over until Kaethe Schuchter is arrested.
“She is the last fugitive, and I'm guessing she's got a lot of money. With that kind of money, you can hide for a long time.”
First Published January 5, 2003, 12:05 p.m.
