Risk & Compliance

SEC Charges ex-CFO in $1B Death-benefit Fraud

The former finance chief played a role in an insurance policy scam built on "viatical" transactions.
Sarah JohnsonFebruary 20, 2008

The Securities and Exchange Commission charged a former CFO with helping fraudulently raise more than $1 billion from about 30,000 investors in a company specializing in interests sold in the insurance-policy death benefits of terminally ill or elderly persons.

In its complaint against the ex-CFO of Mutual Benefits Corp. (MBC), the SEC accused Raquel Kohler of knowingly participating in the company’s fraud. For nearly 10 years, the Fort Lauderdale, Fla.-based company offered unregistered securities to investors through the so-called viatical or life settlement transactions, until federal regulators shut it down in May 2004. Kohler has settled the SEC case.

In viatical or life settlements, investors buying the interest in the person’s life-insurance death benefit expect to realize 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.

MBC’s executives weren’t truthful about the these policies’ profitability and maturity rates, or how the company determined life expectancies and used investor payments, according to the SEC. For instance, one of the company’s lead principals determined most of the life expectancies himself and not a licensed physician as MBC had claimed.

The company also “diverted and misused significant investor funds” into personal accounts. The SEC says Kohler was the one who wired these funds out of MBC’s operating accounts between 2001 and 2004 and labeled them as “commissions.”

In September, Kohler; Ameer Khan, president of Viatical Services, which administered MBC’s funds; and Stephen Ziegler, an attorney representing MBC, were sentenced to serve five years in prison plus three years of probation. Each was ordered to pay restitution, with Kohler, for example, ordered to pay $470 million.

As a convicted felon, Kohler is suspended from dealings with the SEC, and the latest case adds a permanent injunction against violating securities laws.

Khan and Ziegler also have settled the SEC’s recent charges against them. Attorneys for all three individuals could not be reached to comment on this article. Kohler and Ziegler did not have representation in the SEC case, and Khan’s attorney is on vacation. All three individuals’ relationships with their criminal attorneys were terminated when they were sentenced in their criminal cases.

MBC hired Kohler as CFO and comptroller in 2001 after two years of reviewing the company’s financial statements as an external auditor. As CFO, she was responsible for reconciling bank accounts, arranging wire transfers, reviewing financial documents, and compiling information for state and federal regulators. As a “substantial participant” in her company’s fraud offerings, “she was aware of MBC’s misuse of investor funds, helped conceal the fraud, and wired investor funds to accounts MBC’s principals controlled,” according to the SEC complaint.

In a press release issued last summer, a U.S. attorney for the Southern District of Florida said Kohler admitted to playing a role in deceiving regulators about MBC’s management and also to committing perjury when testifying at an SEC deposition in 2004.