SEC Charges Brothers in Insurance Scam
By Colin Dodds
March 13, 2007
The SEC has filed charges against ABC Viaticals, its former president, Keith LaMonda and his brother, Jesse LaMonda, for their fraudulent sale of interests in life settlements.
The United States District Court for the Northern District of Texas granted the SEC’s request for a preliminary injunction, an asset freeze, the appointment of a receiver, and other relief.
Between June 2001 and November 2006, ABC allegedly raised more than $100 million from roughly 4,000 investors selling life settlements with guaranteed annual returns of between 27% and 150%. According to the Commission, ABC told investors an independent escrow agent oversaw their assets, and that those assets were sufficient
to pay premiums for the life expectancies of the insured. ABC also told its clients that financial guarantee bonds purchased by ABC would “fix” the date and amount of the investor’s return.
But precious few of those representations were true, the SEC said in its complaint.
In fact, the LaMondas exercised control over all the client assets held by its escrow agents. And while the brothers fully funded the escrow accounts to pay premiums on the policies, they also took roughly $6.5 million of investor funds for themselves and entities they controlled. As for the guarantees they offered investors, they used a bonding company which they knew would not perform as promised when bonds came due.
In addition, the LaMondas neglected to inform their clients that they were indicted for their role in the fraudulent sale of viatical and life settlement investments in July 2005, according to the Commission. At the time, they were the subject of at least seven state regulatory actions. For obvious reasons, they kept that quiet.
Despite the direness of the SEC’s charges, the Commission is the least of the LaMonda brothers’ worries right now. Last week a Texas jury convicted them on all charges of mail and wire fraud, for their role in selling viatical and life settlements. As a result, the brothers could face 30 years in prison and criminal restitution penalties in excess of $100 million.
The SEC’s involvement in the case is part of an overall renewal of interest by regulators in the misuse of vehicles that straddle the line between insurance and investment.
The misuse and abuse of life settlements was a big subject during Practising Law Institute’s Understanding the Securities Products of Insurance Companies Conference
earlier this year.
Jeff Angelo, assistant deputy superintendent and chief examiner at the Life Bureau of the New York State Department of Insurance said his department was growing concerned because brokers and insurance companies often stand to make a lot of money by persuading people to sell their insurance contracts for lump sums. Those sales are often not in the individual’s best interest. It’s important that firms disclose all the risks, he said.
While the LaMonda case went far beyond a simple scarcity of disclosures, it is indicative of how scam artists have used insurance products to defraud investors.
Earlier this year, a Florida district court sentenced Peter Lombardi, former president owner of Mutual Benefits Corp., to twenty years in prison for his role in a viatical and life settlement scam. That particular fraud, prosecuted by the SEC, took more than $800 million 28,000 investors.
The court also ordered Lombardi to pay disgorgement in the amount of $5,774,160, plus prejudgment interest of $105,840 and a civil penalty of $120,000, which he paid in full.
Other Mutual Benefits Viatical Fraud Information:
Viatical Principals Pay
Viatical Fraud Story
Viaticals are now subject to regulation
