You’ve heard of Bernie Madoff and Madoff Securities. You’ve heard of R. Allen Stanford and his Stanford Financial Group. But here’s another Ponzi scheme that resulted in a major federal indictment the other day. Tens of thousands of people across the United states were deceived. Hundreds of millions of dollars are missing. And it hasn’t drawn a lot of public attention.

Does National Prearranged Services ring a bell?

That’s the company that sold more pre-need funeral contracts than anyone else. NPS officials turned out to be among the earliest examples last year of stereotypical U.S. executives’ greed. It’s the biggest scandal to hit the funeral industry in years.

Tens of thousands of people paid a lot of money to the Missouri-based company that sold funeral contracts through insurance policies written by its two subsidiary Texas insurance companies. You buy these contracts now, with the idea that when you die, that’s one less worry for your survivors: most funerals costs are already paid.

Last year, though, Texas regulators figured out the company was about to fail and placed it into receivership. The FBI launched a criminal investigation.

That’s how I came to know about this. With the help of Jim Bates of the Funeral Consumers Alliance of Texas, I was the first newspaper writer to expose this, which I did in my Fort Worth Star-Telegram column. (Credit, though, to the award-winning Funeral Service Insider newsletter that put the story into print first.) I’ve kept my eye on it ever since and wondered why more people haven’t done so.

But last week, two new developments show the immense reach of this scandal.

On Thursday, a federal lawsuit was filed that seeks to recover $600 million in lost funds from the companies. That same day, a federal grand jury indicted former NPS Chief Financial Officer Randall Sutton for mail fraud, wire fraud and money laundering. (Here’s my story about that in the Aug. 8, 2009 Star-Telegram.)

I called Sutton at home Friday and left a message that I wished to hear his side.

By going after the CFO, however, the feds may be targeting the actual founders of the company, the Cassity family, the politically well-connected funeral industry entrepreneurs that dominated their industry and made millions.

Where the money is today is anybody’s guess, but before this is through, we’ll surely have a greater understanding of what the St. Louis Post-Dispatch calls the “secretive Cassity family trust, RBT Trust II.”

“Some believe the missing funds could be hidden in that account,” reporter Todd C. Frankel writes.

Until now, we didn’t know what ultimately led to the demise of NPS and its two Texas subsidiaries – Lincoln Memorial Life Insurance and Memorial Service Life Insurance. But the federal indictment gives us the first behind-the-scenes look at the many ways you can steal from a corpse.

If you’re keeping track of big-time fraudsters who are ruining this great nation of ours by making suckers out of millions of us, well, please take notes. Watchdog Nation, the only way to stop these scams is to understand how they work. (NOTE: Details below are from the U.S. Attorney’s Office, and, of course, at this point, they are only allegations.)

* Promise your customers that the money they invest will be held in trust for when they die. Get the customers to pay in full when they sign the contract, but don’t tell them there is any risk. And don’t disclose to funeral homes and customers that these funds will be used for other purposes.

* Don’t tell customers that because their funds are used for other purposes, other contracts to new customers must be sold to cover the costs of funerals for the original customers.

* After you convince your customers to pay in full for a life insurance policy to cover funeral costs, go back and erase from their contracts any mention that complete payments were actually made. Alter documents so they show that customers made only partial payments. Then take the difference between the full payments and falsified partial payments from the customer’s insurance policy and use it for other purposes. Leave most of the customer’s payment in the account, but transfer the obligation of future payments to the insurance provider, who will be surprised when that bill comes due years later.

* While you’re altering the forms, make sure you white-out the names of the true beneficiaries and replace them with the name of National Prearranged Services. Once NPS is listed, the company can get more money. Here’s how: Pledge customers’ insurance policies as collateral for loans to NPS without the customers’ knowledge. Then use affiliated insurance companies to extract money from these loans under false pretenses. Use proceeds to pay outstanding premiums due from other customers. You can get another $65 million from your customers that way, the indictment states.

* Because NPS is now a listed beneficiary, NPS can then easily convert customers’ whole life insurance policies to monthly renewable term policies. By taking the difference from the insurance company, the difference from the cash surrender value of the whole life policy and the first monthly premium of the renewable term policy, you can get another $40 million from your unknowing customers, the indictment states.

* Don’t keep your promise to invest the money you receive from roll-over accounts. Instead, purchase large blocks of pre-need funeral contracts from funeral homes you’ve done business with. Promise to invest 80 percent of the underlying customers’ funds for 30 days, and then use the money to purchase life insurance. But don’t bother investing the money as promised. While you’re at it, create false monthly reports for the funeral homes showing their money is held in trust — when that’s not true.

* Promise to invest $1.7 million from a well-known Kansas City funeral home, but place the money in speculative futures contracts – and lose most of it. Then, rather than admit what happened, send monthly statements to the funeral home showing false balances.

* Give false information to regulators and funeral homes when they come by asking questions.

* Make sure your chief financial officer claims that he is licensed by the Missouri Department of Insurance. But get his secretary to study and take the qualifying exam online pretending to be him.

Who gets hurt in the end? Right now, most states have guaranty funds that pick up funeral costs in the event of a systemic failure such as this. But I fear that when those funds run out, funeral homes, already operating on tight budgets, will be forced to pay the losses out of pocket to assuage angry customers, well, actually their survivors.

Dave Lieber is the author of Dave Lieber’s Watchdog Nation: Bite Back When Businesses and Scammers Do You Wrong, the 2009 winner of the Next Generation Indie Book Award for Social Change. This post appears on http://www.WatchdogNation.com.