Grifters Fined $5M for Viatical Scam
A Florida District Court judge has entered final judgments in the SEC’s case against a former executive and several companies involved in a fraudulent viatical investment scheme. The scam defrauded roughly 39,000 investors out of more than $1 billion.
The court’s final judgments were levied against Ft. Lauderdale-based Mutual Benefits Corporation (MBC), a viatical settlement provider, former MBC vice president Steven Steiner, and two entities he controlled, Camden Consulting, Inc., and SKS Consulting, Inc. The court initially found the defendants and liable for prejudgment interest and disgorgement in the amount of $5,000,000. But it ordered them to pay $3,925,000, based on their financial condition.
In April, the SEC filed for a dismissal of the charges against relief defendants Viatical Benefactors and Viatical Services because they were under the control of a court-appointed receiver, responsible for distributing the companies’ assets to defrauded investors.
The SEC’s pursuit of the MBC viatical scheme stretches back to 1998, when a final judgment of permanent injunction was ordered against Steiner’s brothers Joel and Leslie Steinger, the de facto principals of MBC. In May of 2004, the Commission obtained an emergency action to halt MBC’s billion-dollar fraudulent offering. The action charged MBC, the Steinger brothers, and Peter Lombardi, MBC’s then-president, with running a fraudulent viatical investment scheme from 1994 through 2004.
The defendants were charged with raising assets by falsely promising investors fixed annual returns between 12% to 72%. The life expectancy of each insurance-policy holder, or viator, was a key factor in determining the maturity date of the investment, the rates of return, and the amount of funds that needed to be escrowed for the payment of future premiums on the policies. The defendants told investors that the life expectanciy figures were determined by independent physicians. But in reality, the doctors hired by MBC did not actually review any of the viators’ medical records. Instead, they merely signed off on life expectancy statements created by Joel Steinger.
The Steinger brothers also failed to disclose that at least $26 million in funds collected in the offering was paid out to themselves and their relatives in the form of “consulting” fees.
In June of 2005, the Commission added Steven Steiner as a defendant in the case. The regulator charged Steiner with securities violations in connection with MBC’s fraudulent offering. According to the SEC’s complaint, Steven Steiner was the “public face” of MBC who ran most of sales training sessions and regularly met with existing and potential investors.
He touted the humanitarian nature of viatical investments and assured investors and agents that the life expectancies were determined by doctors prior to being ascribed to a given policy. What Steiner failed to tell any of their investors was that 90% of the viatical settlements his firm invested in were beyond the projected life expectancies that had been promised to investors. As a result, shortfalls in escrowed premium funds forced the defendants make payments to investors using monies escrowed for future obligations of other investors. That created a Ponzi-sceme situation.
Steiner also failed to inform investors that his brothers and fellow defendants were the principals of MCB, had a disciplinary history with the Commission and the Commodities Future Trading Commission, and of the numerous cease-and-desist orders against MBC.
On December 1, 2005, the SEC agreed to a $25 million settlement in its civil action against MBC, the Steinger brothers, and Lombardi. Without admitting or denying the allegations, Leslie and Joel Steinger and Lombardi also consented to an injunction against future securities violations.
Leslie and Joel agreed to pay $9 million each in disgorgement and prejudgment interest and a $500,000 civil penalty. Lombardi agreed to pay $5,880,000 in disgorgement and prejudgment interest and a $120,000 civil penalty. In late January of this year, Lombardi was sentenced to twenty years in prison followed by three years of supervised release for his involvement in the MBC fraud.
In March, the Commission charged two other brothers with bilking investors through a fraudulent viatical investment offering. According to the regulator, Keith and Jesse LaMonda raised over $100 million from roughly 4,000 investors through Texas-based ABC Viaticals from June 2001 through November 2006.
The LaMonda brothers made numerous false claims to investors regarding ABC’s offering, including failing to disclose that they had taken $6.5 million of investor funds for themselves and their own entities. A Texas District Court granted the SEC’s request for an asset freeze, preliminary injunction, and the appointment of a receiver, among other relief.
Source: CCH Wall Street
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