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Viatical Company Pleads Guilty to Racketeering, Fraud

March 5, 2007
Mutual Benefits Corp., once the largest viatical settlement company in the country, has entered a guilty plea to criminal charges of racketeering and investment fraud in Florida's Broward County Court.

The company will be placed on probation and will be administratively monitored by the Florida Office of Insurance Regulation.

The viatical industry frequently involves the discount purchase of life insurance policies from an insured individual who has been diagnosed as being terminally ill. Investors become named beneficiaries and upon death of the insured, are paid the full amount of the policy. The profit is based upon the projected life expectancy of the insured.

Fraudulent life expectancies issued by Mutual Benefits left many investors with false expectations and investments that negatively surpassed their advertised terms, prosecutors charged.

"This company intentionally defrauded thousands of people, offering the 'once-in-a-lifetime' deal," Florida Attorney General Bill McCollum said. "My office and the Department of Financial Services share the common goal of protecting the citizens of our state. I thank them for partnering with us to bring this company to justice."

Florida's Department of Financial Services began investigating criminal allegations against Mutual Benefits in 1999. Authorities discovered that during the bidding process for the policies, principals of the company were setting the life expectancies of the insured persons prior to any medical review and sending backdated life expectancy letters to the investors.

As a result, policies were not maturing as promoted in marketing materials and investors were not realizing the investment return promised by Mutual Benefits. The company sold policies worth more than $1 billion to over 30,000 investors worldwide.

The criminal charges filed by the Office of Statewide Prosecution were a direct result of the investigation conducted by the Division of Insurance Fraud. The company's license to conduct business in Florida has since been revoked as a result of an administrative action filed by the Florida Office of Insurance Regulation.

The U.S. Attorney's Office filed criminal charges against Peter Lombardi, the president of Mutual Benefits, who was sentenced to 20 years in prison earlier this year. Federal charges were also filed against Clark Mitchell, the doctor who falsified the life expectancies. Mitchell pled guilty and faces up to 10 years in prison. He is scheduled to be sentenced later this month. Victim restitution is being handled by a receiver who will be monitored by a federal district judge.

In February of 2000, the Fifteenth Statewide Grand Jury issued a report on the viatical industry which led to broad legislative changes primarily geared to consumer protection. Since that time, there have been sweeping changes in the operations of Florida-licensed viatical settlement companies and the number of these companies operating in Florida has dwindled significantly.

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