Articles Posted in Life Settlements

Financial Firm and Its CEO Settle Life Settlement Fraud Charges
The US Securities and Exchange Commission announced that Verto Capital Management and its CEO William Schantz III have settled civil charges accusing them of running a Ponzi-like scam involving life settlements. As part of the settlement, Verto Capital and Schantz will pay over $4M.

According to the regulator’s complaint, the two of them raised about $12.5M through promissory note sales that were supposed to pay for the firm’s purchase and sale of life settlements. The notes were sold mostly through insurance brokers in Texas.

Investors who were religious were the main target of the alleged fraud.They were allegedly told that that the securities were short-term investments that were at low risk of defaulting.

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Fort Worth-based investment adviser James Poe has been barred by the Texas State Securities Board from serving as a financial representative or broker in the state. According to the Board, Poe engaged in fraudulent sales practices involving life settlements.This is Texas securities fraud.

The Texas adviser, who is the president of Jim Poe & Associates, Inc., was the recipient of undisclosed payments through International Alternatives PR, which he also owns. The state says that firm consulted on life insurance policy selections and represented activity that was fraudulent.

Poe is also accused of getting paid 10% commission for product sales from ’11 to ’15 even though he was an unregistered agent at the firm. Such payments would be a violation of Texas law. During that period he purportedly recommended investments to certain individuals, who were promised a 75% return. What these investors didn’t know is that in addition to paying for the policy and its premiums, the “associated costs” they agreed to take on included the 10% commission to Poe and undisclosed payments (20% of what they invested) to International Alternatives PR, which consulted and identified which policies to choose.

The Texas State Securities Board’s order said that failure to disclose that 20% of what investors paid went to the firm, which Poe owned, was a failure by the firm to disclose material facts and that this type of activity was fraudulent. The state said that seeing as 30% of investor money went to Poe and his company, this posed a material risk to what an investor could potentially make.
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The Securities and Exchange Commission is charging Novus Financial and principals Brady J. Speers and Christopher A. Novinger with making false claims about life settlements. The regulator filed its claim in the U.S. District Court for the Northern District of Texas.

According to the SEC’s complaint, from ’12 – ’14, the retirement planning firm and its principals sold about $4.3 million in life settlement interests to 26 investors. Speers and Novinger are accused of describing the investments as secure and safe. Both were purportedly willing to manipulate the financial data of investors to make the sale happen.

The Commission also claims that the firm, Novinger, and Speers used a net worth calculator that was bogus. This allowed a number of prospective investors to improperly qualify to buy the interests. In one instance, the non-homestead assets of one couple were falsely inflated to $1.5 million from $263K because of the calculator.

The Securities and Exchange Commission is charging Pacific West Capital Group Inc. with securities fraud and other violations. The regulator contends that the investment firm and its owner, Andrew B. Calhoun IV, misled clients about life settlements.

According to the SEC, Calhoun and Pacific West raised close to $100 million over the last decade from more than 3,200 investors that bought life settlements in 125 life insurance polices. For more than two years, the two of them allegedly used proceeds from the sales to pay the premiums on life settlements that had been previously sold, while concealing that the life insurance policyholders were living beyond their projected life expectancy. Calhoun and his company are accused of make their life settlements seem more successful than they actually were even as they spent the primary reserves to pay policy premiums.

With life settlements, an investor purchases a life insurance policy share with the understanding that he/she will get part of the death benefit later. The investor is the one responsible for the premium payments and keeps the policy until the insured’s passing. Upon the insured’s death the investor is entitled to the policy’s death benefit.

The North American Securities Administrators Association wants the Texas Supreme Court to rule that Life Partners Holdings Inc. has to face a class action securities lawsuit for selling unregistered securities. The state’s high court is set to determine whether to reverse a lower appeal court’s ruling to reinstate a case that accuses the company of selling the securities.

According to the group of securities regulators, violations of the Texas Securities Act were committed when Life Partners sold fractional interests in life insurance polices to investors and that this grounds for a case. The company wants the previous ruling, which found that life settlement contracts are not insurance contracts but are, in fact, investment contracts that are regulated under securities laws, overturned. Life Partners maintains that state securities law does not govern its product.

The putative class action securities case contends that three years ago, Life Partners was involved in a scam that involved offering and selling securities that were unregistered. A trial judge rejected the plaintiffs’ claims, accusing them of submitting a frivolous pleading.

In Harris County state District Court, two men have received prison terms of a decade each for running a Texas Ponzi scam that involved life insurance policy death benefits. Gregory F. Jablonski and Howard Glen Judah are accused of orchestrating a nearly $30M scam involving their National Life Settlements LLC, which sold securities that weren’t registered and which they falsely claimed were benefits-backed. Both of them pleaded guilty to selling an unregistered security and securities fraud.

Investors with National Life Settlements were paid using the money of new investors. The company made false promises, causing customers that they would get an 8-10% yearly return through the promissory notes. Active and retired state employees were among those targeted, and millions of dollars were taken from retirement plans and invested through the firm.

The National Life Settlements used insurance agents, many of whom did not have securities dealer licenses, as it sellers. The agents would go on to make $4M commissions.

The Securities and Exchange Commission has filed Texas securities fraud charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. Life Partners, which is a Nasdaq-traded company, makes nearly all of its revenue from the life settlements it brokers.

According to the SEC, CEO and Chairman Brian Pardo, CFO David Martin, and general counsel and president Scott Peden misled shareholders when they failed to reveal a significant risk, which was that Life Partners was materially underestimating the estimates for life expectancy that it was using to determine how to price transactions. The estimates have a critical effect on company profit margins, revenues, and shareholder profits.

The Commission contends that Life Partners, Pardo, Peden, and Martin took part in improper accounting and disclosure violations, which allowed the company’s books to become overvalued while making it appear as if there was a steady stream of earnings coming from the life settlement transactions that were being brokered.

Peden and Pardo are also charged with insider trading. The SEC claims that the two men sold about $300,000 and $11.5M, respectively, of Life Partners stock at prices that were inflated even though they had material, non-public information disclosing that the company had relied on short life expectancy estimates to make revenue.

In a statement issue by the SEC’s Division of Enforcement Director Robert Khuzami, the agency is claiming that Life Partners also deceived shareholders by retaining a medical doctor to designate baseless life expectancy estimates to underlying insurance policies. Dr. Donald T. Cassidy, who lacks actuarial training and had no previous experience in assigning life expectancy estimates, began working with Life Partners in 1999. (The Commission claims that Pardo and Peden neglected to perform substantial due diligence on the doctor’s qualifications to do this job. They also are accused of telling him to use a methodology created by a former underwriter, who is one of the company’s owners.)

Beginning fiscal year 2007 through fiscal year 2011’s third quarter, Life Partners allegedly understated impairment costs related to life settlement investments and prematurely recognized revenue. The company is also accused of improperly accelerating revenue recognition starting from the closing date until when it got a non-binding agreement with the policy owner to sell the life settlement. Because Life Partners used these Dr. Cassidy’s life expectancy estimates in its impairment calculations, millions of dollars in impairment costs were understated.

The SEC wants the repayment of bonuses and profits from stock sales.

Life Settlements
These usually involve the selling and buying of fractional interests of life insurance policies in the secondary market. For a lump sum amount, life insurance policy owners sell investors their policies. The amount that is offered is supposed to factor in the life expectancy of the insured and the policy’s terms and conditions. The longer the insured is expected to life, the more the investor has to pay in premiums. Policies owned by persons expected to not life as long cost more.

SEC fraud case could give new life to life settlements controversy, Bloomberg/Investment News, January 4, 2012
SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud, SEC, January 3, 2012
SEC Complaint

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011
Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011
Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011 Continue reading

Adley Abdulwahab and Christian Allmendinger, both principals of A&O Resource Management Ltd., must now serve decades prison for their involvement in a $100M life settlement scheme. Both defendants are from Houston, Texas. The Texas State Securities Board, the SEC, the IRS, the U.S. Postal Inspection Service, the FBI, and the Virginia Corporation Commission all investigated this life settlement scam. Over 800 investors in the US and Canada were defrauded
Allmendinger, who is vice-president and co-founder of A & O, was orderd to serve 45 years in prison, while Abdulwahab, who is part owner of A & O and a hedge fund manager is to serve 60 years. Both men were indicted on 18 counts. Also pleading guilty to the life settlement scheme was ex-A & O president David White and four others.

According to the US Justice Department, investors, who wanted conservative investments, were misled into thinking that investing in A & O was a no-risk, safe bet when in fact, it was a “sham.” Among the victims were hundreds of retirees who lost their savings because they invested in A & O. Almendinger and Abdulwahab used investors’ money to pay for expensive cars, luxury homes, and extravagant jewelry.

Abdulwahab and Allmendinger both marketed A & O life settlement investment products to investors. Per the court, the principals misrepresented A & O’s prior success to investors, while also exaggerating its size as a business. Abdulwahab also not only lied about his credentials but also did not disclose that he had pleaded guilty to a Texas felony charge of forgery of a commercial instrument.

When state regulators started looking into A & O’s financial instruments, the fraudsters made up a bogus sales transaction to “sell” the company to shell corporate entity Blue Dymond and Physician’s Trust, also a shell corporate entity. While the sale ended Allmendinger’s ties with the life settlement scam, Abdullah and his co-fraudsters still secretly controlled and continued the financial scheme until September 2009. The majority of the investors were seniors and most of them lost everything they’d invested. For many, this was their entire retirement.

It is unfortunate when an investor loses money because he/she was the victim of financial fraud. Recently, the North American Securities Administrators Association added securitized life settlement contracts on its list of practices and products that are a threat to investors. In many instances, schemes involve “worthless paper” that doesn’t keep up enough assets so that there is a guaranteed fixed return in a fixed time period.

Texas Fund Managers Sentenced Over Life-Settlement Scheme, The Wall Street Journal, September 28, 2011
Life settlements just one more potential scam in recent troubled times, San Diego Source, September 6, 2011
Principals Of A&O Entities Sentenced In Virginia For $100 Million Fraud Scheme,, September 28, 2011

Financial Scammers Are Now Using YouTube, Facebook, LinkedIn, Twitter, and Other Websites to Target Investors, Warns Texas Securities Commissioner, Stockbroker Fraud Blog, September 22, 2011
Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors, Stockbroker Fraud Blog, July 13, 2011
AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investors Securities Blog, April 26, 2011 Continue reading

Steven T. Kobayashi has pleaded guilty to money laundering and wire fraud. The former UBS financial adviser is accused of bilking his private investment fund investors. As part of his plea agreement, he will pay $5,431,600 in restitution and serve a 65-month prison term.

Per the criminal charges, beginning in 2006 Kobayashi, who regularly made financial trades authorized by clients whose account he had access to, started transferring some of these funds into his own bank accounts without the investors’ “knowledge or authorization.” In some instances, clients gave their authorization because they were told the withdrawals were necessary to make investments. On other occasions, he forged their signatures on authorization forms.

Earlier this year, the ex-UBS adviser settled SEC securities fraud charges. The agency says that Kobayashi set up Life Settlement Partners LLC, which is a fund that invested in life settlement polices. He was able to raise millions of dollars for the fund from his UBS customers. However, he also started using the money to pay for prostitutes, expensive cars, and pay off gambling debts.

The SEC says that to try and pay back the fund and investors before they discovered his misconduct, he convinced several other UBS clients to liquidate securities and transfer to the proceeds to entities under his control. This allowed him to steal more money from the investors. Kobayashi settled the SEC charges without denying or admitting to them.

Related Web Resources:

Ex-UBS Adviser Pleads Guilty To Charges He Bilked Private Fund Investors, BNA Securities Law-Daily, June 10, 2011
Ex-UBS Advisor Faces Criminal Charges, in Life Settlement Case, On Wall Street, March 3, 2011

More Blog Posts:

Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011
Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress
, Stockbroker Fraud Blog, August 8, 2010
AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investor Securities Blog, April 26, 2011 Continue reading

Brokers Kris Bradford Rhoden and Jimmy Wayne Freeman Jr. are accused of Texas securities fraud and of bilking investors of millions. The two registered representatives allegedly took part in the improper sale of life settlement notes. They are also accused of lying to their employer, PlanMember Securities Corp, about the sales. Now, Texas State Securities Board says the two men are facing $100,000 fines and license revocation.

Between June 2008 and February 2009, the two men allegedly sold note agreements that were supposedly backed by life insurance policies and a 10% simple-interest return guarantee over five years. They also are accused of selling an Immediate Income Investment Plan, which was purported to have been backed by life insurance policies and a five-year, fixed biweekly income account. National Life Settlements LLC, which was shut down by Texas securities cops in 2009 after it sold $30M in bogus promissory notes, was the issuer both products. (A judge later ordered that the investors it defrauded get back about $20 million.)

Now, state regulators are saying that Rhoden and Freeman did not comply with PlanMember’s supervisory procedures, which doesn’t allow private-securities transactions and requires that the broker-dealer approve any securities transactions occurring outside the regular course of business. The two brokers allegedly told Planmember on their compliance questionnaire that they did not sell such products. They are also accused of using their personal email accounts to let PlanMember clients know about the investments, as well as of failing to update their U-4 forms in a timely manner to show that they were marketing the life settlement notes.

Related Web Resources:

Corpus Christi investment advisers face license hearings, fines,, June 24, 2011
Two reps could lose securities licenses for selling life settlement notes, Investment News, June 24, 2011
Texas Stockbroker Fraud

More Blog Posts:

Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme, Stockbroker Fraud Blog, December 7, 2010
Three Houston Men Accused of $103 Million Texas Securities Fraud Involving Life Insurance Scam that Victimized at Least 800 Investors, Stockbroker Fraud Blog, September 7, 2010
Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress, Stockbroker Fraud Blog, August 5, 2010 Continue reading

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