Investors not satisfied in viatical case
February 2nd, 2006SEC fines, attorney costs leave little for victims
The Securities and Exchange Commission has reached settlement agreements to make the top executives of Mutual Benefits Corporation pay millions of dollars in fines and “disgorgement” of their ill-begotten gains in a death-benefits investment scheme.
The settlements still leave 59,000 investors in the corporation’s so-called “viatical” investments holding empty bags for their nearly $1 billion in investments.
They include at least two area residents who say they aren’t satisfied with the outcome.
Ron Gillis of Venice and Garry Brandt of Rotonda said this week they’ll be lucky to see 10 cents on the dollar for their investments, despite claims by their broker that “nobody has ever lost any money” on viatical investments.
“I think it’s a crime, an absolute crime,” Brandt said. “The product was totally misrepresented, and somebody ought to be held accountable.”
A viatical is an investment in which investors buy shares in the life insurance policies of terminally ill patients.
The investments are purchased, usually through a broker, from a “viatical provider” such as Mutual Benefits Corporation. The provider pays the insurance premiums for the patients.
The investments allow the patients, who are known as “viators,” to receive a lump sum for their insurance policies before they die.
The price of the viatical is based on the life expectancy of the viator, which is determined by a physician.
Once the patient dies, the life insurance policy pays the viatical provider, which then distributes a percentage of the proceeds to the investors.
MBC became the target of dozens of complaints that the vast majority of its viators had outlived their life expectancies. That left investors still waiting for payoffs years later.
Investigators also have alleged that the company’s medical doctor misrepresented material facts in estimating the life expectancies of the viators.
Gillis, for example, said he bought $10,000 in viatical investments on two AIDS patients in 1997. One patient died, but the other disappeared for a period of years.
The viator was apparently located in another state, but has since refused to cooperate with MBC representatives seeking information about his health, Gillis said.
“So no one knows whether he has AIDS or not because the doctor who said he has AIDS went to jail,” Gillis said.
When the company sold him the investments, he was told the viators were expected to live only 6 months to a year, Gillis said.
The Securities & Exchange Commission placed MBC into receivership in May 2004. A trial was set to begin Oct. 31, but was canceled after several of the corporation’s top officers agreed to settle out of court.
Under the settlements, the company’s former president, Peter Lombardo, agreed to pay the SEC $6 million, including a $120,000 fine and $5.8 million in “disgorgement.”
Also, MBC executives Joel and Leslie Steinger, who are brothers, agreed to pay $9 million each. The agreements also forbid the executives from misrepresenting investments or selling securities in the future.
However, the payments will do little to offset the losses of investors. In fact, the court receiver filed a motion in December to temporarily block the settlements.
The receiver, Roberto Martinez, said the settlement orders lifted a freeze on the defendants’ bank accounts. That would allow the defendants to withdraw additional assets that potentially could be seized to pay back investors, the receiver argued.
“The receiver has been contacted by a number of banks that the Steingers have already sought to close out their existing accounts,” Martinez wrote in his motion.
Among the losers is one investment group, identified as the Ynals Corp. of Colombia. However, the government doesn’t view the group as a victim.
The group had invested $169,000 in a $4 million life insurance policy that “matured” with the viator’s death. However, the government seized the funds, saying the money for the investment “represents the proceeds of narcotics trafficking, making the policy and its associated death benefits subject to forfeiture,” according to the receiver’s court records.
Martinez has authorized payments from MBC’s frozen assets to pay the premiums on the insurance policies and the legal costs for the corporation. Some 42 law firms are listed as involved in the case.
In a Sept. 14 order, Miami U.S. District Court Judge Federico Moreno concluded that MBC doesn’t have enough cash to continue paying the premiums much longer.
On Jan. 13, the court gave investors three options:
* consent to selling their shares through an auction process.
* assume responsibility for paying the premiums that MBC was obligated to pay.
* allow the investments to “lapse.”
Gillis said he questions whether it’s ethical to sell his shares, considering that his viator has refused to cooperate with MBC representatives.
Brandt also said even if viators die, the receiver will seize most of the funds to pay the bills of the corporation until the case is resolved.
As a result, he expects no investor would be willing to pay more than “5 to 10 cents on the dollar.”
Gillis said he could challenge both the legality of his investment and the fairness of the settlement options, but the cost of litigation “would throw good money after bad.”
“I’m sick for so many people being hurt and I’m sick the only people that benefited are the people who sold these illegal investments and the attorneys that sucked the well dry,” he said.
More prosecutions could come in the future.
Attempts to contact both receiver Martinez and Linda Schmidt, lead attorney for the SEC, for comment were unsuccessful Tuesday.
Source: Sun Herald
