Ponzi schemes have been in the news lately primarily because of the Madoff scandal. Four mutual sales agents with Mutual Benefits Corp., a viatical and life settlement company, have been indicted in Florida for their alleged involvement in another Ponzi scheme that officials say raised more than $1.25 billion from more than 30,000 investors before being shut down in May 2004. The indictment charges the Defendants with fraud.

The indictment was announced by Eric I. Bustillo, acting U.S. Attorney for the Southern District of Florida, and Jonathan I. Solomon, special agent for the Federal Bureau of Investigation. According to the 25-count indictment, the Defendants’ fraud caused more than 28,000 victims to lose approximately $837 million. Many of these victims lost their investments for retirement, education and medical expenses, while the Defendants made millions of dollars and, in some cases, lived extravagant lifestyles that included million dollar homes, expensive cars, horse farms and international travel.

According to the indictment, MBC sold viatical and life settlement investments through an international network of sales agents. A viatical or life settlement is an investment in which an investor purchases the right to receive the benefit on a terminally ill or elderly person’s life insurance policy. An investor in a viatical or life settlement realizes a profit if, when the insured dies and the policy matures, the death benefit paid is more than the price paid for the policy and the expenses needed to keep the policy active. The longer an insured lives, the more expensive it becomes to maintain the investment because more premium payments must be made to prevent the policy from lapsing and becoming worthless.

The indictment alleges that MBC’s sales agents and marketing materials falsely promised investors “safe” investments in “secure” life insurance policies. Instead, MBC’s viatical and life settlement were investments that had many undisclosed risks to investors. MBC is accused of engaging in wide-scale fraud by improperly acquiring policies that could not be bought and sold, pressuring doctors to rubber-stamp false life expectancy figures, and mismanaging premium funds in an unsustainable Ponzi scheme.

According to the indictment, one of the Defendants, the principal executive in charge of most major decisions made at MBC, was a convicted felon. He had been convicted in a federal court of defrauding investors in the past. His controlling role at MBC was hidden from investors. To carry out this scheme, doctors were hired who could be pressured to adopt false life expectancies, allowing MBC to buy low-value policies and immediately resell those policies to investors at a higher price by claiming that the insureds covered by the policies were near death.

Two of the Defendants are lawyers who allegedly assisted MBC with the marketing of its fraudulent investment by meeting with investors in his Fort Lauderdale law offices and encouraging them to purchase MBC investments. One of the lawyers was MBC’s premium trustee, who held millions of dollars of investor money in accounts under his control. Instead of protecting the money entrusted to him, the indictment alleges that the lawyer used money collected from more recent investors to pay premium obligations on older policies as part of a Ponzi scheme.

Source: The United States Attorney’s Office, Southern District of Florida