Only 12 months ago, the sale of viatical policies, (discounted life insurance policies, usually bought from terminally ill people at less than face value) was hailed by many in the Algarve as a risk-free alternative to investing in the stock market. One company offered a return of 12 per cent on a 12 month investment and claimed: “Whether the economy slows or recession threatens, this investment is NOT affected by uncertain economic times.”
One year later, America’s largest viatical settlement company, Mutual Benefits Corporation, which was also heavily involved in selling in Spain and Portugal, has apparently been shut down and had its licence suspended for violations of Florida and federal laws involving securities violations, fraud and misrepresentation.
The action follows a lengthy investigation by Florida officials, including those from the Office of Insurance Regulation (OIR) and the Securities and Exchange Commission (SEC). As a result, the OIR has issued an order suspending Mutual Benefits’ license to act as a viatical settlement provider in Florida. And the US District Court for the Southern District of Florida has authorised the SEC to seize the assets of the company and place it into receivership.
“The dangers posed by letting MBC
continue to operate are grave”
Meanwhile, there are reports that the Office of Statewide Prosecution has charged the company with racketeering and 15 counts of investor fraud after an investigation by the Division of Insurance Fraud, housed in the Department of Financial Services.
It seems that Mutual Benefits has raised more than 600 million dollars through the sale of viatical policies. Kevin McCarty, director of the OIR commented: “The dangers posed by letting MBC continue to operate are grave and I needed to act immediately to salvage what we can for Mutual Benefits’ investors and creditors.”
The OIR’s investigation apparently revealed that Mutual Benefits did not escrow adequate funds to pay future policy premiums, did not honour contractual obligations, issued improper viatical settlement contracts, used unlicensed sales agents, failed to adequately disclose information to investors, and dealt in fraudulently obtained policies.
The investigators looked at Mutual Benefits’ operations from January 1, 1999 to March 31, 2003. A review by an accounting firm, hired by OIR, claims to have found that Mutual Benefits’ premium escrow account for approximately 6,000 policies is dangerously under funded, with an estimated deficit of www..4 million by September 2004. The accounting firm also determined that 74 per cent of Mutual Benefits’ 7,368 active policies are carrying a zero or negative balance.
The investigators also allegedly discovered that Mutual Benefits had transferred a total of $7.6 million between accounts to cover premiums. McCarty said, “This is a glorified Ponzi scheme.” He revealed that Mutual Benefits is currently a defendant in various federal and state actions brought by investors, beneficiaries and viators (those who sell their policies at a discount).
Many invested their
life savings
Florida Chief Financial Officer, Tom Gallagher, is reported to have expressed his concern for Mutual Benefits’ investors and voiced his disappointment with recent legislative action to strip enforcement tools from state regulators, including DFS and OFR, who help oversee the viatical industry. “We are fortunate to have partnered with federal regulators to step in and help us save what is left for investors, many of whom invested their life savings,” said Gallagher.
Information supplied by John Westwood of Blacktower Financial Services. For the full story, plus details of how to act if you invested in a viatical policy from MBC or one of its agents, see next week’s The Resident.
