The Securities and Exchange Commission (SEC) has charged Ameer Khan, Raquel Kohler and Stephen Ziegler, with anti-fraud violations in connection with the Mutual Benefits Corp. offering fraud and Ponzi scheme that the SEC shut down in May 2004. Mutual Benefits, headquartered in Ft. Lauderdale,
According to the SEC’s 2004 litigation release announcing its emergency action to shut down the scheme:
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.
[Ultimately] , MBC effectuate[d] a premium payment scheme similar to traditional “Ponzi” schemes, whereby the company [paid] premium obligations of specific investors with monies escrowed for future obligations of other investors.
In this latest action, the SEC alleges that Khan was the titular president and sole shareholder of Viatical Services, Inc., a company that claimed it tracked insurance policies sold to MBC investors. Kohler was a licensed CPA and the CFO of MBC, and Ziegler was former regulatory counsel. The SEC charges each with aiding and abetting the MBC fraud. In September, U.S. District Judge Paul C. Huck sentenced each man to five years in prison, to be followed by three years of supervised release. The judge also ordered Kohler to pay $470 million in restitution, and Khan and Ziegler to pay $826 million in restitution.
Notice that two of those charged had the degrees that gave them credibility. Kohler is a CPA, and Ziegler is an attorney. Investor thinking often goes like this: The guy is a CPA (or attorney). It took him years of study to gain that position. What are the chances that he would risk everything he’s worked for by being involved in something illegal? This deal must be legitimate.
Hundreds of thousands of Americans are now living only on social security rather than the interest from a sizeable nest egg, because they followed that line of reasoning. The flaw in the reasoning is in the premise-that someone who has achieved a certain professional standing necessarily exhibits the tratis of the best practitioners of that profession. The premise is false, and the conclusion therefore leads to disaster.
All humans are susceptible to greed. Most adults have experieced at least some moments of financial despair. Between the two, they can lead even the most accomplished professional into a stuation that will ultimately cost him his hard won license. Tragically, his license will not be the only casualty. Seniors and baby boomers lose what it took them decades to save. That the professional who led them into the investment loses his license is small consoldation when the investor must turn from choosing a house in which to retire, to choosing a medicaid nursing home.
Pay less attention to the letters behind the name, and more attention to the results of an SEC-trained investigation. Actions speak louder than words, and certainly louder than letters.
