Fraud Alleged for ‘Death’ Investors
TALLAHASSEE, Fla. (AP) _ Two South Florida companies may have defrauded investors who bought life-insurance policies from terminally ill people, say investigators, who believe that in some cases the policies didn’t actually exist.
The odd but legal practice known as ``viatical settlements″ gives the terminally ill a chance to get much-needed cash while they are still alive. Investors buy the life insurance policies at a fraction of their value, giving the policyholder money up front, and then profit when the seller dies. Viatical companies arrange for the sales of the policies and take a share of the proceeds.
The state, and reportedly the FBI, is investigating American Benefit Services Inc. and Financial Federated Title and Trust Inc. to determine if they cheated investors out of tens of millions of dollars by selling fake policies.
A Florida judge on Wednesday ordered American Benefit Services in Lake Worth, Fla., to turn over records to investigators with the state Department of Insurance. Investigators also are reviewing documents from Sunrise-based Financial Federated Title.
FBI agents have already seized assets _ including 40 cars _ belonging to Financial Federated owner Frederick C. Brandau, according to a recent report in The Wall Street Journal. About 5,000 people have invested between $115 million and $125 million, the newspaper reported, citing unnamed sources.
Brandau told the Journal that he and his companies have done nothing wrong and that he is fighting the accusations. He also said that none of the investments were at risk.
Neither Brandau nor American Benefit owner Raphael Ray Levy could be reached for comment, and FBI officials declined to comment about their investigation.
American Benefit lawyer Houston Park told Circuit Judge Ralph Smith Jr. in Tallahassee Wednesday that American Benefit would cooperate but believed the insurance department did not have the authority to subpoena all the documents it wants from the company.
Park said the company would not comment on the allegations.
Brandau’s lawyer, Thomas Sclafani, said he will propose a settlement to federal prosecutors meant to assure the investors that their investments are safe.
Sclafani said Wednesday that an offshore multinational mining company called CSI Ag Ltd., which has bought Financial Federated’s assets, will cover the investments.
``This is not a scam,″ said Sclafani, a former federal prosecutor. ``CSI will be more than able to fully guarantee all of the investors on the schedule they are supposed to be repaid on. ... They have as assets a number of gold mines that are very lucrative.″
American Benefit and Federated Financial are related, though separate, companies. Essentially, Federated Financial lined up the terminally ill patients and bought the policies, supplying them to American Benefit, which sold the products to investors.
An internal state insurance department memo in February says that American Benefit maintains it solicits investors to buy into viatical settlements offered by Financial Federated. American Benefit said there wasn’t any formal agreement between the two companies, according to the memo.
``This statement is not plausible as all funds solicited by ABS are forwarded to FF&T,″ the department memo said.
The insurance department was looking into American Benefit before the agency received dozens of complaints from investors this spring. A financial specialist recommended the state investigate the company after it refused to document that the policies it was selling existed.
Several investors have sued American Benefit in state court in Palm Beach County, claiming they asked to see the policies but were not provided them.
A short time after the FBI apparently began looking into Brandau’s business last fall, he put an ad in the newspaper looking to buy viatical policies.
W. Scott Page, the owner of Wm. Page and Associates, the first licensed viatical company in Florida, and the president of the National Viatical Association, answered the ad.
Brandau gave him $1 million to keep in escrow to hold onto to show he was interested in buying some of the policies Page already had, Page said.
``They gave it to me with a blanket ‘Use it for anything I could get.’ All they wanted was a policy,″ Page said. ``That’s why my suspicions started to rise.″
Asked if he thought Brandau wanted policies because he wanted something to show investigators, Page said his lawyer advised him not to comment.
``Everyone can assume what they like,″ he said.