The Washington Blade - February 18, 2000
Lou Chibbaro Jr.

In a development that has stunned AIDS advocacy groups, the Office of the Florida Statewide Prosecutor last month seized the medical records of 69 patients, many of whom are believed to be Gay men with HIV. Prosecutors said the seizure - from the offices of a Fort Lauderdale firm that keeps records for viatical settlement companies - was aimed at determining whether the patients concealed their HIV status in order to buy multiple life insurance polices.

The 69 patients live in cities and towns across the country and, between them, have bought at least 200 individual life insurance polices. Some people bought three or more polices each, according to Lisa Porter, the chief assistant statewide prosecutor who is leading the investigation. She said the people who bought multiple polices purchased them from different life insurance companies. Florida law classifies the withholding of information about pre-existing medical conditions while applying for a life insurance policy as an act of criminal fraud that carries a possible penalty of five years in prison.

Porter said her office is looking into the possibility that some of the 69 patients whose medical records were seized could be charged with racketeering, dealing in stolen property, and grand theft. A conviction on one or more of such charges could lead to a sentence of as much as 30 years in prison, she noted.

Porter said each of the 69 patients sold his or her policies to viatical investors through Mutual Benefits Corporation, a Fort Lauderdale viatical settlement company that does business throughout the country. Mutual Benefits Corporation is among a number of viatical settlement companies under investigation by the Florida Statewide Prosecutor's office and the Florida Department of Insurance. She said the probe of Mutual Benefits Corporation is continuing and that no charges have been filed against the company. She declined to say whether her office would be filing charges.

In an interview with the Blade, Porter said that, among other things, prosecutors will use the medical records to determine whether the patients purchased their life insurance polices before or after they were diagnosed with a terminal or life-threatening disease.

In a Jan. 14 hearing in the Broward County, Fla., Circuit Court, attorneys representing the 69 people with HIV/AIDS argued that the state should be barred from obtaining the medical records, saying the confiscation of the records would represent a breach of the patients' privacy rights. An organization representing people with AIDS also urged the court to block the release of the records, saying the release of the records could set a damaging precedent.

Porter argued that the records are needed as part of a criminal investigation. Judge James Cohn, who had ruled against the release of the records at an earlier hearing, ruled in favor of the prosecutors Jan. 14, noting that a state appeals court had directed him to reverse his earlier ruling. Cohn cited the appeals court's assertion that the patients effectively ceded their right to privacy when they agreed to release their medical records to a viatical firm as part of a "commercial transaction."

In ordering the release of the records, Cohn required state prosecutors to keep them confidential.

State officials have said the seizure of the medical records is part of a sweeping investigation into a fraudulent practice known as "clean-sheeting." According to a report released by a Florida State grand jury that is investigating the practice, clean-sheeting involves the act of intentionally failing to disclose one's status as a terminally ill person when applying for a life insurance policy.

The grand jury report, which was released Feb. 4, states that investigators believe people engaging in clean-sheeting are coached by unscrupulous insurance agents who advise them on which life insurance companies offer the highest monetary policies without requiring a physical examination and blood test, including an HIV test. Within weeks of buying their life insurance policy, the patients, at the advice of the agent, then sell their policies to a viatical settlement firm which, in turn, arranges for an investor to buy the policy.

Because the scheme is risky - life insurance companies can cancel the policy if they discover the applicant concealed a life-threatening illness - the patient often receives only 10 to 20 percent of the face value of the policy, the grand jury report states.

Once the patient dies, the investors receive their profits - as much as 90 percent of the face value of the policy.

The grand jury report states that in "legitimate" viatical industry transactions, the patient, or "viator," usually receives 50 percent to 70 percent of the face value of the policy.

AIDS activists note that viatical settlement companies have provided many people with AIDS with much-needed cash to address the staggering costs related to their medical care. Since the middle of the 1980s, viatical firms have aggressively promoted their services to Gay men with HIV, placing full-page ads in Gay newspapers and magazines.

The industry went into a sharp decline beginning in 1997, when new and effective drugs greatly improved the life expectancy of people with AIDS. With the longer survival periods for people with AIDS, investors have either refused to buy life insurance polices from people with AIDS or insisted on paying only a tiny fraction of the face value of a policy. Many viatical firms went out of business, according to industry observers.

Bill Kelley, executive director of the Washington, D.C.-based Viatical Association of America, said the industry rebounded in the past two years by shifting its client base from people with AIDS to senior citizens and people with other terminal diseases. Kelley said viatical firms have also begun to reap large profits by brokering the sale of individual life insurance policies from retiring corporate executives in a process known as "life settlements."

However, Kelley said a few viatical firms continue to seek out people with HIV and AIDS. Although the overwhelming majority of viatical firms engage in honest and fair business practices, Kelley said some have engaged in illegal or unethical practices. He said he would not comment on the firms identified by the Florida prosecutors until the investigation is concluded and until the firms have had a chance to defend themselves in court.

A statement released by prosecutor Porter's office last week announced that the probe has led to indictments against seven individuals associated with other viatical settlement companies. The charges include 155 felony counts of fraud pertaining to the viatication of life insurance policies. In a report released on Feb. 4, the grand jury declared, "Fraud in the viatical settlement industry is rampant."

The Express, a Fort Lauderdale Gay newspaper that first broke the story about the release of the medical records of the 69 patients, reported that attorneys representing the patients fear that the records may eventually be released to the public.

"These people have a privacy interest that is more compelling than the state's," The Express quoted attorney Emilio Benitez as saying.

"We advise people to play by the rules," said Terje Anderson, spokesperson for the National Association of People With AIDS. Anderson said that while NAPWA strongly condemns fraudulent practices, the organization wants Florida prosecutors to carefully determine whether unscrupulous viatical companies or insurance agents took advantage of the people with HIV/AIDS who appear to be targets in the investigation.

"A lot of people with HIV face serious financial problems," said Anderson. "So if they are approached by someone who gives them an opportunity to make a fast buck, that may be tempting."

Claudia French, acting executive director of AIDS Action, a national group that advocates on behalf of AIDS service organizations, also cautioned prosecutors about the privacy rights of people with HIV.

"Rooting out fraud is a good thing," French said, "as long as we don't rip apart innocent families' lives in the process. Every precaution should be taken to guarantee the privacy of families' medical records, especially the records of those with HIV."
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