Betting Their Lives

It's easy for a three-time felon to get $20 million for his investment company, as long as no one asks any questions.

The Texas State Securities Board wasn't acting on investor complaints; its enforcement division was merely trolling online for stuff that didn't look right. Had NLS's agents not been so egregious in their idiotic advertising, it's quite possible that investors wouldn't have realized their situation until much further down the line.

Joe Rotunda, the board's head of enforcement, says that life-settlement scams have increased since he came aboard in March 2007, fueled by fear that traditional investment plans were no longer safe. And the typical person at retirement age shopping for alternative investments probably won't be too keen on "exotic" opportunities like derivatives or collateral debt obligations, Rotunda says.

"But we understand that people die," he says. Making money off their insurance policies "is a very easy concept to explain to somebody." Moreover, a single life-settlement scam can reach a lot of people quickly if you rope in just a few sales agents with a built-in customer base.

"The promoters themselves are often not selling, they're recruiting," Rotunda points out. "...recruiting that one insurance agent is the same as recruiting perhaps dozens of investors."

The beauty is, the agent doesn't even have to be complicit in the scam. It's possible the agents recently sued by the receiver didn't realize they were participating in a scam. It's possible they're just enormous imbeciles who have defied the odds according to natural selection. Either way, as Rotunda says, "They may not know that it's a big fraudulent scheme, but without their efforts, none of this works."

Investors were also lucky that, if Judah and Jablonski really had any criminal intent, they weren't even wise enough to move their money offshore or otherwise hide it in a series of complex shelters. Receiver Mortenson was able to recover two-thirds of the investors' money, so it doesn't appear that anyone was completely wiped out.

Judah and Jablonski have maintained that NLS was always going to be able to make good on investors' returns, and that state officials were trigger-happy thugs.

Dominguez says the duo may have made "stupid mistakes, but mistakes that could've been remedied."

It seems that there was so much stupid to go around that everyone related to NLS is too embarrassed to talk. The Texas agents the Press tried to reach disconnected their business and personal phone numbers, so were difficult to contact. The Press tried reaching more than a dozen investors to see if they would be willing to share their stories, so that others might not make the same mistakes in the future. The only investor we were able to speak with was a retired professor who asked that his name not be used. The Press declined.

Judah's wife, son, daughter-in-law and granddaughter, who all collected money from NLS, could not be reached for comment. And neither, of course, could trillionaire Yohannes Riyadi.           

 

craig.malisow@houstonpress.com

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12 comments
jiazhuangde
jiazhuangde

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Valkyre
Valkyre

The old saying "If it seems too good to be true, then it probably is (too good to be true)" still holds true.

Guest
Guest

You guys are 2 in a row with solid cover stories this month. Keep up the good work, Malisow.

Note to the Editor-in-Chief: Can you see how this type of story is more useful than uninspired "top five lists" and vanity blogs about "The 1980s softcore cable porn I jerked off to when I was a kid?"

Gary Packwood
Gary Packwood

Good article about strange companies in the business of trying to guess when folks are going to die.

I think we are talking about Life Partner Holdings, Inc. out of Waco, Texas ...NOW.

http://www.lphi.com/default.ht...

And their stock (Life Partner Holdings) closed out today at about $8.00 per share

http://www.bloomberg.com/apps/...

And today, March 9, 2011 Attorneys are attempting to communicate with investors.

Lieff Cabraser Heimann & Bernstein, LLP Reminds Investors of Upcoming Deadline In Class Action Lawsuits Against Life Partners Holdings, Inc. (April 4, 2011)

http://bit.ly/dGKTPo

Again, the deadline is April 4, 2011 and investors need to be aware of that deadline so we can all watch the stock price move down to $7, $6, $5, $4, $3, $2, $1 and then one penny.

Texanfanrocket
Texanfanrocket

Not a timely or well-informed article, and you gotta love folks throwing in their opinion into these articles, as well. NLS was shut down 2 freaking years ago, and mainly for non-disclosure of ownership. ie. They were the owners and beneficiaries of the policies. Hell, 2 others were shut down last year. You couldn't write-up on at least a more recent one?

Secondly, You did know annuity companies have been using mortality rates (ie. life expectancies) to determine a payout, right? Right? No, of course you didn't. Please tell me your outrage there. These are 80-90 year olds, typically. Nobody is betting on a 20 year old getting run over by a car.

Thirdly, The State of Texas has determined this not to be a security. Links are below.

If you want to be a serious journalist, keep your opinions to yourself, and be better informed. It took 15 minutes to shred every ounce of credibility regarding this article.

http://www.google.com/#hl=en&a...

http://ctwatchdog.com/2010/05/...

Texanfanrocket
Texanfanrocket

That would primarily be in response to the WSJ article from Dec. that claimed that Life Partners was tossing out valid life expectancies and replacing them with an "in-house" doctor who only took a few minutes to review each and significally shortened the LE's making them look more favorable than they really were.

And, yes. THAT story would've been a tad better as far as timeliness.

Instead we get a story that was written in the Chron when it actually occured. 2 years ago.

Look into Retirement Value and AGAP, as well for at least some that happened in the last 12 months.

Craig Malisow
Craig Malisow

Hi Texanfanrocket,

Thanks for posting your thoughts, and I just wanted to briefly respond.

1.) The reason we felt this was a timely article was that there are currently criminal charges pending. Although the company went into receivership in 2009, the story wasn't over. But of course, it's all up to the amount of interest a person has in a story. There are plenty of 600-word summaries of the NLS receivership, but if a person wants to dive deeper and get to know the people involved, and their histories, then they may enjoy an in-depth look. Different strokes, I suppose.

2.) Yes, life expectancy is calculated in both annuities and life settlements, but they are different products. Of course, my characterization of life settlements as "repugnant" is an opinion, and I understand that other people may not feel the same way. However, I hardly feel that a difference of opinion is a "credibility" factor.

3.) I think the point is that the State Securities Board defines life settlements as securities, and Judah and Jablonski are being charged with securities fraud. We'll be following the proceedings, and if a trial or appellate court rules in this case that NLS was not peddling securities, then we'll report that.

Thanks again for sharing your thoughts,Craig Malisow

Texanfanrocket
Texanfanrocket

Hi Craig,

1.) There have been in-depth articles written in both Forbes and the Wall Street Journal about these. I'll be more than happy to provide links if you would like.

2.) Did you know that Social Security uses these LE's, also! How repugnant to think our Gov. uses tables to determine when people will die? If you want to really be offended, then look no further than the Insurance Companies. The "Cash Value" on policies is so laughably bad that it created this market in the first place. Imagine if you put away $10,000 a year for a $1,000,000 insurance policy for 30 years and then your significant other passes, or you need extra cash, etc. and the insurance company decides that they will give you $100,000 for it?!? The whole reason this exists is so folks can get additional funding and has been around since 1911... But I'll assume you didn't know that, either.

Life Settlements have been used as investments by institutions for years, including Berkshire Hathaway, Wells Fargo, and the like.

3.) NO. You obviously didn't look at the link I provided. It is NOT defined that way by the State of Texas. They are being charged by the SEC because they worked in several States and are therefore subject to Federal law, which at this point does seem to regard these as a security.

Texanfanrocket
Texanfanrocket

Craig,

The first point is that typically investors are buying a bundle of policies with the full understanding that the estimates are just that: estimates. Some will pass earlier than others. The main issue is the knowledge that folks in their 80s tend to die sooner rather than later.

And if the TSSB had determined these to be securities, Life Partners would have been shut down years ago. They are located in Waco, after all.

If and when they are determined to be securities, I promise I'll be the first to let you know.

Craig Malisow
Craig Malisow

Hi Texanfanrocket,

I don't want to prolong this exchange indefinitely, but, if you read closely, my characterization of life settlements as repugnant is not based on the mere fact that LE's are used. LE's themselves are completely benign. My opinion -- and again, it's only my opinion -- was based on third parties literally profiting from someone else's death. The fact that LE's are a factor is a non-issue. Investors are not making money off pork bellies or a better mousetrap; they are literally getting a payout upon a complete stranger's death. Was that person going to die anyway? Absolutely -- we all are. So therefore, some people might say, "Look, this old bag is gonna kick the bucket anyway; I might as well make some money off it," and sleep peacefully. You might feel that, since the seller of a policy gets cash they might need right away, then everyone benefits. Totally valid point. It's also a valid point that some people might find that idea ghastly. Again, different strokes.

And again: the State Securities Board believes life settlements are securities, regardless of what the court ruling says in the link you provided. Now, you might believe the Board to be foolhardy and quixotic in their stance against life settlements, but nevertheless, they are the ones who believe they had jurisdiction, and they are the ones who got the ball rolling. Again, you can disagree with them, and hey, maybe they'll change their minds in the future, but right now, they believe life settlements are securities. (The SEC is still undecided on the matter and recently convened a task force to look into it; the task force recommended that they be defined as securities).

I'm sure you'll again point out the error of my ways, and I truly appreciate your input, but I think I've addressed everything.

Thanks,Craig

 
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