SEC wins round in viatical inquiry

By Kathy Bushouse
Business Writer

June 26, 2004

A federal judge ruled Friday that the Securities and Exchange Commission was within its rights to level fraud allegations against Mutual Benefits Corp., a
Fort Lauderdale viatical company.

U.S. District Judge Federico Moreno wrote in his ruling that "in light of the underlying principles of the federal securities laws, investments in viatical settlements are covered by the federal securities laws."

Viatical companies buy life insurance policies from the terminally ill and elderly, and then offer a share of those policies to investors. When the person dies, the investors collect.

In issuing his ruling,
Moreno also extended a temporary restraining order against Mutual Benefits, restrictions that will stay in place until fraud allegations against the company are settled. Attorneys will begin their evidentiary hearings on Wednesday.

Federal and state regulators shut down Mutual Benefits on May 5, accusing the company of fraud.

Teresa Verges, an assistant regional director with the SEC's
Miami office, said Moreno's ruling is significant because it counters another federal lawsuit in which it was ruled that settlements were insurance contracts and not securities subject to federal regulation.

"Now I think investors are far more protected today than they were yesterday," Verges said.

Through a spokeswoman, state Chief Financial Officer Tom Gallagher lauded
Moreno's ruling. "This is great news," Gallagher said. "This gives investors a fighting chance to get their money back."

Mutual Benefits officials have accused the SEC and the state of trumping up fraud charges. Attorneys argued in court earlier this week that work done after getting investors' money for a viatical settlement involves filing paperwork and other actions that wouldn't make the products a security.

Russ Klenet, a former lobbyist for Mutual Benefits and spokesman for Mutual Benefits President Peter Lombardi, was out of the country and unavailable for comment Friday.

Bruce Zimet, an attorney for former Mutual Benefits President Leslie Steinger, said he wasn't surprised by
Moreno's ruling.

"The macro view of this, from our perspective, is that this is a little hiccup in the road to ultimately winning the case," Zimet said. "We think we will prevail and we think the SEC has no business [regulating viaticals]."

Lombardi and Steinger both are named in the suit, as is Joel Steinger, a consultant to Mutual Benefits and Leslie Steinger's brother.

Zimet said he planned to appeal. This case, he said, will be decided either by the 11th Circuit Court of Appeals or the U.S. Supreme Court.

Business Writer Tom Stieghorst contributed to this report.



Kathy Bushouse can be reached at kbushouse@sun-sentinel.com or 954-356-4667.