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We do not buy
or sell
viatical contracts
(not the actual cover)
  
In sympathy
with people
from 86 nations
who lost loved ones
on 9-11 | |
The Bond that WIll Not Pay
We
warned about the bonds that insure payment of viatical and life settlement
investments. Now there is proof--from the complaint filed by the Securities and
Exchange Commission against ABC Viaticals and the LaMonda brothers.
First through Accelerated Benefits Corporation and later
through ABC Viaticals the LaMondas touted their offerings as superior to that of
their competitors because these investments were bonded. They did obtain bonds
in excess of $100 million from a company named International Fidelity & Surety,
Ltd. The company claims to be organized under the laws of the Republic of
Vanuatu. If everything about this bond and about the bonding company, IFS, was
reliable then there remains the questions: Is this company licensed in your
state to sell bonds?
But that question is minor when considered against the facts.
Among the problems:
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If IFS and the bond were trustworthy, the contract with IFS
states that the bond will not be paid if any regulatory body challenged the
validity of the underlying investments offered and sold to investors. |
What that
means--what investors were not told--is that actions by the states of Oklahoma,
Pennsylvania, Texas, Virginia and others to halt the sale of these securities
made the bond worthless.
But investors did
not see a copy of the bond. They did not see the words that allowed IFS the
right to deny coverage. And the LaMondas did not disclose to investors that they
had been issued enforcement orders by multiple states.
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And so it happened. According to the complaint filed in
federal court November 17, 2006 by the Securities and Exchange Commission
(SEC), in 2001 and 2002 the LaMondas, through both of their companies,
acquired nine policies that insured and elderly couple.
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The total death benefit of these policies was almost $45
million. IFS issued financial guarantee bonds for each policy at a rate of 3.5
percent of the death benefit. The bonding term was set to expire on April 5,
2006. |
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The bonds were prominently advertised in
promotional materials and investor documents. |
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The LaMondas raised $25.6 million by selling
fractionalized shares to 1,158 investors. |
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According to the terms of the bond, if one of the
insureds was alive in July 2006 (the end of the bonding period plus a 90-day
grace period), IFS would purchase the policies for the full death benefits.
Investors would be paid shortly thereafter. |
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The bonds were held by ABC's escrow agent. When the
escrow agent filed a claim with IFS and attempted to collect the amount due
under the bonds, IFS refused to pay. The bonding agreement stated that they
would not insure securities. The letter from IFS, dated October 16, 2006,
stated that IFS was aware that the SEC was investigating and that the
LaMondas' criminal trial was ongoing. Until these proceedings were complete,
IFS would not perform under the bonds. |
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The LaMonda brothers also did not disclose to investors
other risks about the IFS bonds. The SEC concluded that there was a material
risk that IFS would fail to perform regardless of its contractual commitments.
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The LaMondas conducted virtually no due diligence with
respect to IFS, its ability to perform under the bonds, or the reliability
of its claims to be a leading insurer of financial performance bonds. |
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IFS brochures claim that it is "one of the world's
leading insurance organizations" and "one of the largest underwriters of
financial guarantees in the United States." The SEC states: "These
statements are false." The SEC's complaints details the facts behind
denouncing the statements as false and concludes, "IFS is not and never
was rated by any of the three major US rating agencies." |
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Additionally, IFS was the subject of at least one state
regulatory action. On June 28, 2001 Florida issued cease and desist orders
to IFS for operating in the state without a license. IFS did so when it
provided bonds for life settlements sold by
Future First Financial Group (whose owners are now serving prison
sentences). |
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The LaMondas made no effort to find out if IFS was
licensed to sell or could legally sell the peformance bonds. |
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The LaMondas obtained financial statements from IFS but
failed to make any inquiries regarding "red flags" raised by these
statements. The SEC found the statements to be "intrinsically inconsistent." |
NOTE: Other companies are touting IFS bonds to investors
who buy life settlements. Two examples are
Eagle Investments (offices in California and Arizona) and
Pro Financial
Group (offices in California). For more details about
the risks of bonds from companies that are not licensed, see our
Special Report. |
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