Important note: Information in this article was accurate in 2004. The state of the art may have changed since the publication date.
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Miami Herald - May 6, 2004
Patrick Danner, pdanner@herald.com
State and federal regulators on Wednesday shut down Fort Lauderdale-based Mutual Benefits Corp., saying the nation's largest viatical-settlement company committed racketeering by luring tens of thousands of investors into an elaborate Ponzi scheme that raised more than $1 billion.
Mutual Benefits' shutdown comes less than a week after it successfully lobbied state legislators to limit oversight of the viaticals industry, which sells sick and elderly people's life-insurance policies to investors.
The company faces criminal charges and a civil action. In essence, regulators say, the company promised investors that the policyholders would die within three years -- and was wrong nine out of 10 times.
Doris Barrilleaux, 72, of Tampa, said she invested $40,000 because she thought it would help AIDS and cancer patients in desperate need of cash. But she got nothing back.
"It wasn't all of my eggs, but it was a big egg," Barrilleaux said.
David Nelson, head of the Miami office of the Securities and Exchange Commission, said just how much investors have lost will take some time to figure out. Authorities allege that nearly $35 million went to companies affiliated with Mutual Benefits' principals, including a convicted felon.
"The scope of this fraud is enormous," Nelson said. "We're talking about a scheme that involved more than 29,000 investors and raised more than $1 billion."
Efforts to reach Mutual Benefits' executives and lawyers were unsuccessful. Mutual Benefits, in a recorded phone message and on its website, refers inquiries to a phone number for information on the receivership.
The SEC obtained a court order on Tuesday to seize Mutual Benefits' assets and place the company in receivership.
The company has been in the crosshairs of regulators in at least five other states for alleged securities violations. Regulators contend that viatical-settlement contracts are securities that must meet certain standards to be sold to the public.
Viatical-settlement companies buy at a discount life insurance policies held by the terminally ill or elderly in need of cash. In turn, they sell the policies to investors, who collect the death benefits when the insured die. The policies are often described as "death futures" because investors stand to earn a better profit the quicker the death.
Authorities charge in a cease-and-desist order that the firm gave policies bogus "life expectancies." The Florida Office of Insurance Regulation found that while 96 percent of the policies had a life expectancy of six months to three years, 90 percent of the policies had already exceeded the three years. Mutual Benefits purchased more than 9,000 life insurance policies with a total death benefit of almost $1.5 billion.
By manipulating life expectancies, Mutual Benefits flooded the viaticals market with policies, said Nina Bannister, a spokeswoman for Florida's Department of Financial Services, which oversees the insurance office.
"But in doing that, the company created shortfalls in their premium funds," Bannister said. "They used new investor funds to keep up with premium payments. Hence the alleged Ponzi scheme."
The Office of Statewide Prosecution charged the company with racketeering and 15 counts of investor fraud. The insurance office found that a Mutual Benefits escrow account for approximately 6,000 policies will have an estimated deficit of $3.4 million by September.
VICTIMS
Among investors the state claims were defrauded are Barrilleaux and Tampa truck driver Charlie Speer.
"They just took my $10,000 and told me all kinds of lies," said Speer, 63, in a phone interview. He said he responded to a newspaper ad promising annual returns of about 14 percent. Since purchasing a 36-month policy in 1999, Speer said he has not collected anything.
Mutual Benefits and a related company employ about 120 people in the Wachovia Bank tower in downtown Fort Lauderdale, according to Roberto Martinez, a former U.S. attorney in South Florida, who was appointed receiver. Martinez said he has informed employees that the company has been shut down. He said he is in the process of determining how many will be retained to work during the receivership.
State insurance regulators and the SEC brought the case against Mutual Benefits.
COMPLAINT NAMES
No criminal charges have been filed against any of Mutual Benefits' principals, but three were named in the SEC's complaint. They are brothers Joel and Leslie Steinger, and Peter Lombardi, all of Fort Lauderdale.
The SEC's action describes Joel Steinger as the "de facto chief executive" of Mutual Benefits, though he 'purports to be a mere 'consultant.' " In a 1998 action the SEC brought against Joel and Leslie Steinger arising out of his role at Mutual Benefits, they were accused of misleading investors in connection with the sale of $100 million worth of viatical settlements from October 1994 to April 1996.
The Steingers were ordered to give up $850,000 and pay a $50,000 civil penalty. They were also enjoined from violating securities laws.
In 1980, Joel Steinger was convicted of mail and wire fraud, according to the SEC's complaint. The SEC's Nelson said the latest action encompasses the time regulators were in settlement talks with the Steingers.
"That's what makes this scheme particularly galling," Nelson said. "At or about the time they settled with us, they were continuing to do this."
COMPANY CONTACT Investors who have purchased viatical contracts from Mutual Benefits Corp. can find out information on the receivership by calling 305-577-1099 and leaving their name and number. A representative for the receiver will call back within two business days, according to a recorded message. A website, www.mbcreceiver.com, is expected to be in operation by Friday.
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