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U.S. SECURITIES AND
EXCHANGE COMMISSION
Litigation Release No.
18698 / May 6, 2004
Securities and
Exchange Commission v. Mutual Benefits Corp., et al.,
Case No. 04-60573-CIV-MORENO (S.D. Fla.) (May 4, 2004)
SEC OBTAINS EMERGENCY
ORDERS SHUTTING DOWN MUTUAL BENEFITS CORP., ALLEGES FRAUD AND CONTEMPT OF
PRIOR INJUNCTION IN CONNECTION WITH SALE OF VIATICAL SECURITIES
STATE OF FLORIDA OFFICE
OF INSURANCE REGULATION AND OFFICE OF STATEWIDE PROSECUTION FILE
SIMULTANEOUS ACTIONS
The Securities and Exchange Commission ("SEC") announced that on May 3,
2004, it filed an emergency federal civil action seeking to halt an
alleged billion dollar fraudulent securities offering affecting 29,000
investors worldwide. This action was filed against defendants Mutual
Benefits Corp. ("MBC"), Joel Steinger, his brother, Leslie Steinger, and
Peter Lombardi (collectively the "defendants"). MBC is headquartered in
Ft. Lauderdale, Florida. The SEC's action includes a civil complaint and
also a contempt motion against the Steingers.
In 1998, the Steingers were
enjoined from violating the federal securities laws in connection with
their activities at MBC.
On May 4, 2004, the Honorable Federico A. Moreno, United States
District Judge for the Southern District of Florida, entered, among other
things, a temporary restraining
order, a freeze of the defendants' assets and an order appointing a
receiver over MBC.
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They Sold
Interests In Dying People's Insurance Policies
The SEC's complaint alleges
that the defendants raised over $1 billion from more than 29,000
investors through a fraudulent, unregistered offering of securities in
the form fractionalized interests in viatical and life settlements. A
viatical or life settlement is the sale of a life insurance policy by
a terminally-ill person or senior citizen (the viator) at a price
discounted from the face value of the policy. Investors pay the
premiums and receive the face value of the life insurance policy when
the insured, or viator, dies. In turn, the viator receives a portion
of the proceeds of his life insurance policy as a lump sum.
According to the SEC's complaint, MBC
promised investors fixed returns ranging from 12% to 72%, depending
upon the term of investment chosen by the investor. The life
expectancy figure determined for each viator was a key factor in
determining the maturity date of the investment, the rates of return
to investors and the amount of funds needed to be escrowed for payment
of future premiums on the policies.
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The Policies Were Faked
In its complaint, the SEC alleges that in raising money for its
enterprise, MBC falsely represented to numerous investors that its life
expectancy figures were the product of a review by an independent
physician. The SEC further alleges
that MBC failed to disclose that about 65% of its outstanding life
insurance policies were sold to investors using fraudulent life expectancy
figures generated by MBC. Moreover, the SEC alleges that MBC omitted to
tell investors that more than 90% of its policies have already surpassed
their assigned life expectancy. According to the SEC's complaint,
as a result of the failure of these older policies to mature, shortfalls
in escrowed premium funds have forced MBC to effectuate a premium payment
scheme similar to traditional "Ponzi" schemes, whereby the company is
paying premium obligations of specific investors with monies escrowed for
future obligations of other investors.
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The Victims Were Retirees
Specifically, the complaint alleges that since 1994, defendants have
operated or aided and abetted a billion dollar Ponzi scheme and defrauded
at least 29,000 investors -- many of whom are retirees -- by issuing a
series of material and misleading omissions and false statements,
breaching escrow agreements and breaching their fiduciary trust to
investors
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Relatives On The Payroll
The SEC's complaint also contends that the defendants failed to
disclose to investors that Joel Steinger and Leslie Steinger both played
key roles in the management of MBC's operations and its securities
offering. Furthermore, the complaint alleges that investors were not being
told that at least $26 million in
funds collected in MBC's offering was paid to the Steingers and their
relatives in the form of "consulting fees."
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The Daughter
Was Also Charged
The SEC's complaint charges the defendants with violating the
anti-fraud and registration provisions of the federal securities laws.
Specifically, the Commission alleges that defendants MBC, Joel Steinger,
Leslie Steinger and Peter Lombardi violated Sections 5(a), 5(c) and 17(a)
of the Securities Act of 1933 and Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5, thereunder.
The Commission also alleges that
defendants Joel Steinger and Leslie Steinger, as control persons of MBC,
violated Section 10(b) of the Exchange Act and Rule 10b-5, thereunder. In
addition to the emergency relief described above, the complaint seeks
permanent injunctions prohibiting future violations of the securities
laws, disgorgement, and civil penalties.
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Countless
Shell Companies
Also named in the SEC's action
as relief defendants are Viatical Benefactors, LLC, Viatical Services,
Inc., Kensington Management, Inc., Rainy Consulting Corp., Twin Groves
Investments, Inc., P.J.L. Consulting, Inc, SKS Consulting, Inc. and Camden
Consulting, Inc.
In addition to its civil complaint, the SEC filed an emergency contempt
action against defendants Joel Steinger and Leslie Steinger for disobeying
a prior final judgment of permanent injunction entered against them on May
6, 1998 in SEC v. Joel Steinger and Leslie Steinger, Civil Action
98-6442-CIV-MIDDLEBROOKS (S.D.Fla. 1998). In that previous action, the SEC
charged defendants Joel Steinger and Leslie Steinger with fraud and
securities violations arising out of their roles in MBC's offering as it
stood at that time. In that case, the Steingers were permanently enjoined
from violating the registration and anti-fraud provisions of the federal
securities laws and paid $850,000 in disgorgement, plus prejudgment
interest, and $50,000 each in civil money penalties.
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In simultaneous filings, the State of Florida's Department of Financial
Services-Office of Insurance Regulation filed an emergency
cease-and-desist order against MBC suspending MBC's license to operate as
a viatical settlement provider in and from the state of Florida, and the
State of Florida's Office of
Statewide Prosecution issued a 16 count criminal information against MBC.
The SEC acknowledges the assistance of the following federal and state
agencies: the State of Florida's Department of Financial Services-Office
of Insurance Regulation, the U.S. Department of Homeland Security's Bureau
of Immigration and Customs Enforcement, the State of Florida's Office of
Statewide Prosecution, the North American Securities Administrators
Association (NASAA), and the state securities regulatory agencies for
Alabama, Alaska, Arizona, Colorado, Indiana, Iowa, Kansas, Ohio,
Pennsylvania, Vermont and Virginia.
SEC Complaint in this matter
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http://www.sec.gov/litigation/litreleases/lr18698.htm
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