Risk Management

CFO Guilty of Ponzi Death Scam

Viatical scheme duped investors into thinking they were buying into "safe" and "secure" insurance policies.
Stephen TaubJuly 19, 2007

The former chief financial officer of Mutual Benefits Corp. and two others pled guilty to charges stemming from their roles in a billion-dollar securities offering by the “viatical and life settlement” company, which was closed by federal regulators in May 2004.

In a viatical or life settlement transaction, investors make a lump sum cash purchase of an interest in a terminally ill or elderly person’s life insurance policy death benefit.

Raquel Kohler, former MBC CFO; Ameer Khan, president at Viatical Services Inc., which performed services for MBC; and Stephen Ziegler, an attorney representing the company, all face a maximum of five years’ imprisonment in the case. Kohler pled guilty to one count of conspiracy in connection with MBC’s securities offering, and one count of perjury in connection with her testimony in a civil action brought by the Miami regional office of the Securities and Exchange Commission, according to R. Alexander Acosta, U.S. attorney for the Southern District of Florida.

Sentencing is scheduled for September 25.Khan and Ziegler agreed to be jointly responsible for $826 million in restitution, while Kohler agreed to be jointly responsible for $471 million in restitution, payable to MBC investors.

The U.S. attorney explained that MBC sold investment interests in viatical and life settlements through an international network of sales agents. An investor in a viatical or life settlement realizes a profit if, when the insured dies and the policy matures, the policy benefit is greater than the price paid for the policy. The longer an insured lives, the more premium payments must be made to prevent the policy from lapsing and becoming worthless.

According to an announcement by Acosta, MBC’s sales agents and marketing materials fraudulently induced investor participation in MBC’s offering by promising investors “safe” investments in “secure” life insurance policies. Instead, MBC’s viatical and life settlement were speculative investments fraught with undisclosed risks, the US Attorney asserted. What’s more, MBC engaged in deceptive business practices by improperly acquiring policies that could not be bought and sold, pressuring doctors to rubber-stamp false life expectancy figures, and mismanaging escrowed premium funds in an unsustainable “Ponzi” scheme, he alleged.

The charges accused Kohler of assisting MBC’s principals with the wiring of funds and preparation of financial documents presented to state or federal regulators. Under her supervision, unnamed principals working for MBC misappropriated investor funds by wiring money from MBC’s accounts into non-MBC accounts for personal use. According to the press release, Kohler also admitted to playing a role in deceiving regulators about MBC’s management and has admitted to committing perjury when testifying at an SEC deposition in 2004.

Acosta noted that Khan managed Viatical Service. “Although the public was led to believe that Khan operated an independent business, he was controlled by and reported to MBC’s undisclosed principals,” said the statement. Khan admitted that he advanced MBC’s fraud by concealing the identity of the offering’s true management.

The U.S. attorney alleged that Ziegler assisted MBC with general business and regulatory matters and played a role in the execution of escrow services. He admitted to filing false documents with regulators to conceal the identity and criminal and disciplinary histories of MBC’s management personnel. He also accepted responsibility for a role in MBC’s scheme to acquire certain policies as “gifts” to circumvent policy restrictions on the sale of the policies. As a result, MBC investors were exposed to an additional risk of losing their investments, according to the announcement.