Life Settlement and Viatical Settlement News

But Venice agent denies wrongdoing

“Nobody ever lost money; it’s safe.”

Those words, uttered by Venice-area financial planner Herman “Skip” Jaehne, led retirees Ron Gillis of North Port and John Romanus of Port Charlotte to invest many thousands of dollars in “viatical settlements.”

No one could lose on the investments, Jaehne argued, because a viatical settlement is an investment in which an investor buys shares in the life insurance policies of terminally ill patients at a discount which comes off the face value of the policies.

Once the patients die, as everyone does eventually, the insurance company pays off the investor.

When their investments failed to pay off within a year or two as promised, Gillis and Romanus mounted separate crusades to bring down the billion-dollar corporation that provided their viatical investments, Mutual Benefits Corp. of Fort Lauderdale, and the financial planner who sold them the investments.

Their crusade would eventually take them from the halls of a Fort Lauderdale office building that Gillis described as “shabby,” to Elvis Presley’s deluxe house in Palm Springs, Calif., which Jaehne had purchased for $1.25 million — the amount of money he made selling the viatical investments.

“It didn’t surprise me,” said Romanus, of Jaehne’s connection to Elvis’s house. “I know from past experience, (Jaehne) always wants to do unusual business practices that most good financial planners wouldn’t touch.”

A ‘risk-free’ investment

Viatical investments were established in 1989 and came into vogue in the late 1990s. At that time, interest rates were falling, and viaticals were seen by many as an alternative to other interest-bearing investments.

The term “viatical” comes from a Latin word for giving a traveler or a soldier money before they set out on a long journey.

The people who sell their life insurance policies are known as “viators.” They receive a lump sum payment which represents a discount off the full amount of their policy based on their life expectancy.

The viatical services provider then becomes responsible for paying the premiums of the policy. The provider then sells interests in the policy to investors.

The investors get a return that pays off after the person dies.

Gillis and Romanus were among dozens of area residents who heard about the investments from seminars by Jaehne and other MBC sales agents in 1997 and 1998.

Gillis invested $10,000 and Romanus $25,000.

The two retirees, who didn’t know each other at the time, were told to expect payoffs with a 12 percent profit within about a year — based on MBC’s doctors’ estimates of the life expectancy of the patients named in their settlements.

Some seven years have passed since then, and only one of five patients has died, despite life expectancies that had been estimated as short as six months to one year.

Gillis and Romanus haven’t seen any return on most of their investments.

Their financial planner maintains that the investors will one day see a return, just as soon as their viators die.

“There are no victims,” Jaehne said. “Not one person has lost any money. When I hear the word ‘victim’ it really grates on me.”

About 90 percent of MBC’s viators outlive their life expectancies, according to a report by the Florida Department of Insurance.

In May 2001, a state investigation led to the arrest Dr. Clark Mitchell, MBC’s medical expert, on 25 counts of fraud. He was accused of misrepresenting material facts connected with MBC’s viatical sales.

Those charges were later dropped, after Mitchell was jailed on unrelated Medicare fraud charges.

In May 2004, MBC was seized by the federal Securities Exchange Commission. The SEC also claims the company used fraudulent medical reports to misrepresent the life expectancies of viators.

Mitchell is listed among the SEC’s witnesses set to testify against MBC when the case goes to trial next November.

Gillis and Romanus are also on the SEC’s witness list.

The local investors say they relied on Mitchell’s medical information when they decided to invest their money.

“You’d get this big medical report that made it look like this guy was in his last days,” said Alice Romanus, John’s wife. “It looked like they were counting his white blood cells and everything.”

For their $25,000, the Romanus’s received shares in the life insurance policies of four terminally ill people. One has died, and that policy has paid off.

The three other viators are still alive.

“There’s nothing wrong with a viatical investment,” said John Romanus. “But, when you get falsified medical reports, that is swindling people out of their life savings.”

Crusade begins

It didn’t take long for Gillis and Romanus to suspect they’d been had. Romanus, who ran a tax accounting service with his wife until he retired about 10 years ago, said he began calling MBC within a few months after his viators were forecast to die.

“I was put off,” he said.

In August 1999, Gillis, a retired technical product sales agent who worked with major manufacturing firms, said he got “really upset” after he began calling MSB with questions and got few answers.

He went to MSB’s headquarters to confront MSB executives.

“It was pretty shabby … dingy,” said Gillis of the office building. “The whole set of offices were dirty.”

He said he happened to look on the wrong floor for MBC’s building and found a clinic for AIDS patients. Mitchell worked at the clinic, an SEC attorney said.

“I surmised this whole thing just didn’t look right,” said Gillis.

Gillis said his suspicions were later confirmed when Mitchell was arrested two years later.

In 2000, Jaehne invited some of his clients to a “client appreciation dinner” at which MBC vice president Steven Steiner and marketing director Howard Mandel were to be guest speakers.

Gillis and Romanus attended the event, but Jaehne probably wishes he’d left them off the invitation list.

Gillis said he confronted MBC’s executives during the dinner and Romanus said he recorded the meeting on audiotape.

“They kept repeating, ‘No one ever lost money. None of these people has ever lived past two years,’” Gillis recalled. “That’s when I started interjecting my comments that these things were a fraud. They tried to quiet me down.”

Mandel promised to resolve Gillis’ concerns within 48 hours. But, he never heard from Mandel again.

Gillis said he had to call MBC’s offices five times, before getting a call back from Steiner, who told him “there was nothing they could do.”

Later that year, Gillis returned to MBC, but was told none of the executives were available to see him.

In 2003, MBC staffers told him they’d lost track of his terminally ill patient, Gillis said.

“I figured, I’m stuck,” Gillis said. “That’s when John Romanus and I started communicating more and more on the phone.”

Filing complaints

Romanus, a disabled U.S. Army veteran, said he felt the operation was “too slick” for principles not to know it was based on fraudulent medical reports.

Romanus said he lodged some of the first official complaints and lawsuits against Jaehne and MBC. His complaints apparently helped spark a state investigation that resulted in a $1,000 fine and a six-month license suspension against Jaehne.

The sanctions came in response to advertisements that promised “fixed rate” viatical investments.

Romanus also tried to get North Port Police and the Sarasota County Sheriff’s Office to investigate Jaehne. But, the police refused to take the case.

News of Romanus’ complaints spread to California, where attorney Lynn Romano was researching Jaehne’s background. The research was for a case in which Romano’s client, Reno Fontana, claims Jaehne bilked him out of his share of Elvis Presley’s house.

Fontana, who is said to be an Elvis fan, had signed a contract to buy the house in September 2003 for $1.25 million. The house was considered underpriced, but Fontana couldn’t obtain financing for its purchase, his attorney said.

Presley had lived in the house with his wife, Priscilla, and recorded part of his Raised on Rock album there. He owned it from 1970 until his death.

Located on 1.75 acres in the Little Tuscany neighborhood of Palm Springs, the 5,040-square-foot house is walled and gated for privacy. It has five bedrooms, seven bathrooms, a fireplace, an entertainment room, a wet bar, sauna, steam room, pool, patio and fountain.

Fontana contacted Jaehne to solicit his financial help on the deal. Fontana and Jaehne knew each other since their car racing days 20 years ago.

“Skip jumped right on it,” said Romano. “He came out to California, decided he wanted to get involved. It was on a handshake.

“My client was a very, very trusting person, although after this deal, I don’t think he will be again,” she added.

She said her client understood he was to pay Jaehne a mortgage of some $70,000 per year and fix up the house. Once it was fixed up, Fontana opened a tourist attraction.

For $20, guests were given a tour of the house, which includes some of Elvis’s memorabilia. For $1,000, a guest could sleep in Elvis’s bedroom.

Last June, Jaehne served an eviction notice on Fontana and put the house on the market for $2.5 million.

Romano said the timing of Jaehne’s deal makes sense in light of the trouble brewing over the MBC case.

She cited the fact that in June, the court-appointed receiver filed a complaint seeking $1.5 billion in restitution from some 40 sales agents who sold MBC’s viatical settlements.

The list of defendants includes Jaehne, who received at least $1.2 million, and his company, Jaehne Financial Inc., which received at least $1.1 million from selling viaticals for MBC, according to the complaint.

The complaint states the sales agents had been “unjustly enriched” by selling unregistered securities. The money should be paid back, the receiver argues.

A Miami federal court dismissed the complaint on technical grounds June 22.

Romano speculates that Jaehne used his viatical sales commissions to buy Presley’s house. Now that the sales agents are in legal trouble, he wants to sell the house for a 100-percent profit.

“What’s very interesting is that Jaehne jumped on this when he did, about the time this whole MBC started raising its head,” said Romano. “That’s when this deal was made.”

Jaehne’s story

Jaehne, however, tells a different story. He acknowledged that Fontana wanted him to co-sign a loan to buy Elvis’s house. But the plan changed as the closing date approached.

“We get up to the closing and I find out the guy’s a bum,” Jaehne said. “He’s close to bankruptcy and has a checkered past.”

Jaehne said Fontana has done several similar deals in the past. His “MO” is to find an undervalued property and then find a “patsy” to finance the purchase, Jaehne said.

Jaehne said he decided to let Fontana rent the house. But, Fontana paid the only one rent payment, in April 2004.

Fontana’s claim to have a partnership in the house is based on “some nebulous oral agreement,” Jaehne said.

Fontana sent Jaehne lease-to-purchase agreements, but he never signed them, Jaehne confirmed.

Jaehne also insists that MBC hasn’t bilked investors out of their money. The money will be paid once insurance policies pay off.

“There’s no victims,” he said. “Not one person has lost any money.”

Jaehne also said Mitchell, the MBC doctor, doesn’t deserve blame in the debacle. The reason his life expectancy estimates were off the mark was due to the fact pharmaceutical drugs for AIDS patients improved in the late 1990s, he said.

The SEC targeted MBC because State Chief Financial Officer Tom Gallagher wanted to beef up regulation of the viatical industry, Jaehne said. Gallagher wanted to prosecute some big companies to make his case.

“Let’s shut down the largest company in the world and let’s make an example out of them,” Jaehne said.

In 2002, Gallagher testified before a U.S. House committee that his state office had seized more than 1,000 files representing in excess of $76 million of “suspected fraudulently obtained clean-sheeted life insurance policies.”

He called for the viatical industry to be regulated by the SEC.

Last June, Gov. Jeb Bush signed a bill that transferred the state’s regulation of the viatical industry from the state insurance office to the state’s securities office.

Romanus, in fact, was invited to attend the bill signing as a special guest.

“It has been a crusade, but, each in our own ways, we’ve accomplished a lot,” said Romanus.

Jaehne, however, claims the court receiver has hurt some of the viatical investors by seizing payoffs from insurance companies for viators who died since 2004.

Jaehne also pointed out that the receiver’s claim against MBC’s sales agents has been dismissed. A federal court in Miami ruled that the receiver lacks standing to sue on behalf of the investors.

And Jaehne claims he sold MBC’s viaticals in good faith. He bought some of the settlements himself, he said.

“I feel bad for these people,” Jaehne added. “I feel bad for their frustration. But to accuse me of bilking them out of their money is just way out of line.”

Gillis and Romanus shrug off the Jaehne’s arguments.

“They’re going to take every avenue possible to fight this case,” Romanus said.

“Skip Jaehne is a smart fellow,” he added. “What gets me is, he could have made a hell of a lot more money being honest.”

You can e-mail Greg Martin at [email protected].

This entry was posted on Monday, August 22nd, 2005 at 3:59 pm and is filed under Viatical. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.