Viatical Fraud Investment
Guilty plea expected from head of Lauderdale firm for $1 billion fraud
The former president of a Fort Lauderdale firm accused of cheating investors out of nearly $1 billion is set to plead guilty to securities fraud Monday, according to court files.
Accountant Peter Lombardi, 56, who ran Mutual Benefits Corp. with brothers Joel and Leslie Steinger, was charged this week in the first criminal case to result from a lengthy government investigation. Lombardi is scheduled to enter his plea before U.S. District Judge Paul Huck in Miami federal court.
The company, which was shut down in 2004, purchased life insurance policies from terminally ill and elderly people at a discount and sold shares of the anticipated payouts to investors around the world. Such deals are known as viaticals and life settlement contracts.
Last year, the three men agreed to pay $25 million to settle a civil fraud suit brought by the U.S. Securities and Exchange Commission. The agency alleged Mutual Benefits deceived nearly 30,000 investors by using false projections of how long the insured people would live.
Prosecutors contend in court documents filed this week that Lombardi served as nominal head of the business to hide the involvement of the Steinger brothers.
Joel Steinger was convicted of federal wire fraud in 1981, and both brothers had numerous regulatory infractions on their records that could have raised red flags with investors, the SEC said.
As president of Mutual Benefits, Lombardi took part in a scheme to defraud investors by telling them the firm had a strong track record of accurately predicting life expectancies, prosecutors state.
Lombardi and others also led investors to believe wrongly that their investment had a level of risk similar to a certificate of deposit, or CD, prosecutors said.
According to the government, only 5 percent of the insurance policies held by the company matured within the predicted period and 80 percent failed to mature at all because there was not enough money to keep paying the premiums.
The filing is a criminal information signed by U.S. Attorney R. Alexander Acosta, not an indictment returned by a grand jury.
Fort Lauderdale defense attorney Theresa Van Vliet, who is not involved in the case, said that means Lombardi has already negotiated a plea deal and could testify against his former business partners.
“As a practical matter, when an information is filed it is almost always in conjunction with a cooperation agreement,” she said.
Matt Dates, a spokesman for the U.S. Attorney’s Office in Miami, declined to comment.
Attorney Bruce Zimet, who represents Leslie Steinger, would not comment on the allegations against Lombardi, but said he also assumed Lombardi had entered a deal with prosecutors.
“We can all speculate who he’s going to testify against,” Zimet said.
Lombardi’s attorney, Jon May, and Joel Steinger’s attorney, Roy Black, declined to comment.
Mutual Benefits encouraged investors to buy partial stakes in life insurance policies from willing sellers, generally people with AIDS who needed money. The benefits from the policies would be paid out to investors after the person’s death.
Prospective investors got an estimate of how long the policyholder was expected to live. Buying a policy of a person estimated to live three years brought a promised 42 percent return.
But many life expectancy estimates turned out to be too low, tying up investors’ money far longer than they had been promised.
The SEC sued Lombardi and the Steingers after a raid on the company’s Fort Lauderdale offices in 2004 and alleged the firm manipulated its predicted life expectancies.
Mutual Benefits executives claimed the estimates were wrong because new drugs enabled AIDS patients to live longer.
To resolve the suit, Lombardi agreed to pay $6 million and Joel and Leslie Steinger each agreed to repay about $9.5 million.
The Steingers’ brother, Steven Steiner, settled with the SEC earlier this year and agreed to pay roughly $4 million. Steiner, who changed his name, served as vice president of Mutual Benefits and headed Broward County’s largest AIDS agency until last year.
Alise Johnson, an SEC attorney, said Lombardi has finished making payment, and the funds have been forwarded to a court-appointed receiver in charge of running Mutual Benefits. Leslie Steinger has paid about half of his judgment, with the balance due by Dec. 5, Johnson said.
Joel Steinger has also paid about half of his settlement. The balance is in jeopardy because Steinger’s assets were frozen by a Minnesota court overseeing his divorce, Johnson said.
To date, none of that money has reached investors, said Curtis Miner, an attorney in the receiver’s office.
“All of the money from the settlements and other asset recoveries is in a pool that will be distributed to investors all at once,” Miner said.
In addition to the SEC settlements, the money set aside for investors includes $10 million from a separate settlement with Mutual Benefit’s former legal counsel, the Fort Lauderdale law firm Brinkley, McNerney and partner Michael J. McNerney.
Source: South Florida Sun-Sentinel Vanessa Blum and Tom Stieghorst
