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MBC ‘Viatical’ policyholders vote on investments future
(29/5/2006)
Over the past few weeks, thousands of investors around the world have been voting on whether to continue with a scandal-hit multi-million dollar investment scheme in the hope of an eventual recovery, or to sell up and rescue what cash they can from the wreckage.
These investors’ dilemma began on the morning of
May 5 2004, when a court-appointed Receiver and his staff raided the Florida offices of Mutual Benefits Corporation (MBC), seizing its records and informing 93 employees that they no longer had an employer.
The raid on MBC followed an investigation by the Securities & Exchange Commission into the activities of its bosses, Joel Steinger (alias Joel Steiner), Leslie Steinger (alias Leslie Steiner), and Peter Lombardi.
The Steinger brothers were already well known to investment watchdogs for a string of regulatory offences, and Joel had notched up a criminal conviction for mail fraud and wire fraud. Despite this, he was de facto chief executive of MBC, which bought life assurance policies from the elderly and terminally ill, and then sold shares in those policies to investors.
This was no hole-in-the-corner affair. MBC was America’s biggest dealer in so-called ‘viatical policies’ - policies on lives expected to end in the near future. It had around 30,000 investors, from whom it had taken about $1 billion. Yet the SEC believed that this was a massive fraud.
MBC advertised huge returns for investors, based on the early death of policyholders. But investigators found 90 per cent of those policyholders were still alive at their predicted date of death. And 74 per cent of policies showed a shortfall in cash supposedly set aside by MBC to pay premiums.
The collapse of MBC sent ripples around the globe. In Spain, British expatriates with millions of dollars in MBC policies formed their own victim support body under the umbrella of the Costa del Sol Action Group, which campaigns against unlicensed and unscrupulous finance sector firms. They are now among the thousands now voting on whether policies should be sold for whatever they will fetch, or insisting that they run their course. And this is the issue at the heart of what some industry insiders openly refer to as ‘death futures’.
Overwhelmingly, the second-hand policies sold by MBC to investors should have run their course already, and the original policyholder should be dead. But the viatical policy sector is riddled with corruption. Some middlemen have been caught arranging a fake clean bill of health for people who are HIV-positive, just so they can get a whopping great life policy which is then sold to a firm like MBC, which in turn markets it as a policy on a life shortly to end. This, of course, is a fraud on the insurance company. Or the scam can operate the other way round. People with big life policies can be presented to investors as being at death’s door, only for them still to be alive a decade later. This, of course, is a fraud on the investor.
Viatical investment schemes took off like a rocket in the US but have been slower to emerge in other countries. Be warned, as Candour Consultancy have always argued, gambling on someone losing their life might simply be a fast way to lose your shirt.
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