The Miami Herald - July 30, 1999
Barbara De Lollis - Herald Business Writer

The viatical industry gave money to terminally ill patients in exchange for what often was their last remaining asset: a life insurance policy. In as few as 24 hours, a viatical broker could sell the patient's policy to an investor for a percentage of its worth.

The concept sounded simple: Patients received cash to make life more tolerable; investors were paid back -- with a bonus -- when the patient died. The faster the patient died, the better the profit.

The word viatical comes from the Latin via, meaning "road" or "way."

But not long after the first settlement was made in 1989, the largely unregulated business began to attract a sordid collection of entrepreneurs. Patients were promised money that never arrived; investors were often scammed into believing they'd bought a profitable policy when it turned out to be a money-loser.

Legislators eventually began to crack down. By 1996, Florida became one of the first states to enact legislation regulating the business. By then, however, policyholders, investors and even some industry executives were hesitant about being involved in the industry.

Some people were frightened by allegations of widespread fraud. Others saw that AIDS patients were living longer, and questioned the financial rewards of buying life insurance policies at a discount from them.

Insurance Commissioner Bill Nelson maintains the state still lacks strong enough teeth to deter deceptive practices. Under the existing law, amended just two months ago, Nelson's office lacks the authority to seek criminal penalties, and the maximum penalty regulators can impose against a predatory company is $25,000.

Florida law does, however, require viatical settlement companies to be licensed.

Neither American Benefits Services and Financial Federated Title & Trust Inc. -- two companies associated with Broward businessman Frederick C. Brandau -- are licensed in Florida as viatical settlement firms, said Nelson spokesman Don Pride.

Florida has eight licensed firms.

State regulators first became aware of American Benefits last year when it sought a license to negotiate viatical policies. After twice refusing to show its records to regulators, the company decided not to seek a license.

But an inability to get a license didn't stop American Benefits -- along with Financial Federated -- from luring $125 million from investors by promising big returns from death policies. Some investors now fear the companies weren't buying viatical policies, but were spending lavishly on cars, planes, trips and meals.

Investigators went to Financial's office Thursday seeking records but were turned away, though the company is promising to cooperate.

"This is one piece of a much broader investigation we have under way of the viatical industry," said Pride. "One of the big problems here is that the viatical industry exploded without regulation in place."

In January, Nelson charged another Broward viatical settlement company with deceptive practices. The case against Justus Viatical Group of Pompano Beach is pending, since the company appealed Nelson's findings to the state's Division of Administrative Hearings.

Justus is not currently doing business in Florida, but regulators believe it has since moved to another state. It is also under investigation for operating without a license, Pride said.

Some people became disillusioned with the business.

"I basically got into this business from an altruistic standpoint," said John Banks, chief executive of Chicago-based Viaticus, once one of the biggest players in the field and a subsidiary of CNA, the giant insurance company. "My wife died in 1991, she was ill for a very long time, and I was looking for an idea for people to help themselves at a time of need.

"The way this business was conducted I simply was not comfortable doing it," Banks said. "When you're working with the amounts of money that can be raised and vulnerable clients, there's room for tremendous abuse."
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