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Anatomy of alleged Mutual Benefits $1 billion Ponzi scheme
By Vanessa Blum | South Florida Sun-Sentinel
February 1, 2009
It's been called one of South Florida's biggest frauds, and it's back in the public eye. The alleged ringleaders are headed for trial in federal court, and questions have surfaced about potential fallout for one of Broward County's top elected officials.
Behind it all is the spectacular collapse of Mutual Benefits Corp., an alleged $1 billion Ponzi scheme that government prosecutors say was built on death, greed and deceit.
To help explain this complex, developing story, which has touched many segments of society, from AIDS patients and activists to prominent members of the region's legal community, here is a primer on Mutual Benefits, the crimes its executives are accused of committing, and the possible implications.
What was Mutual Benefits, and how did it make money?
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Mutual Benefits, which operated from 1994 to 2004, traded in what are known as viatical settlements, buying life insurance policies from elderly people and the terminally ill, mainly AIDS patients, and selling shares of their death benefits to investors.
Sales agents touted the investment as a way to make money and at the same time help the seriously ill by providing them with upfront cash. Investors, many of whom were retirees, were told the investment was low risk and would produce an attractive "fixed return."
During its existence, Mutual Benefits purchased more than 9,000 insurance policies and raised more than $1 billion from more than 28,000 investors around the globe.
What went wrong?
With the advent of more potent AIDS medications, patients began living longer and investors weren't able to cash in their death benefits. That meant premiums had to be paid longer to keep the insurance policies active.
Mutual Benefits faced a cash shortfall, court documents and prosecutors say, because it had not set aside sufficient funds to pay such premiums.
In May 2004, lawyers for the Securities and Exchange Commission received a federal court order freezing company accounts and turning operations over to a receiver. All told, prosecutors say, Mutual Benefits investors lost about $837 million.
What was the alleged crime?
Federal prosecutors say Mutual Benefits was a fraud from Day 1, because investors were misled about the company's management and the risks involved.
As laid out in court records, Mutual Benefits was run by a felon with a 1981 wire fraud conviction and several regulatory infractions. However, those facts were not disclosed to investors, court papers and government officials say, and should have been.
Moreover, prosecutors allege the firm pressured doctors to assign pre-determined life expectancies to patients without meaningful medical review.
Once patients began living longer, Mutual Benefits used new investor funds to pay premiums on older policies, according to prosecutors. As more policies went beyond life expectancy, Mutual Benefits needed to sell more and more new policies to keep the old ones active.
In other words, court documents have said and prosecutors will tell jurors at trial, it was a giant Ponzi scheme.
All the while, prosecutors say the firm's executives were pocketing millions of dollars.
Who was involved and what has happened to them?
Three Fort Lauderdale brothers — Steven Steiner and Joel and Les Steinger — started Mutual Benefits and served key roles in the company. Joel Steinger was said by prosecutors to have secretly run the company despite his earlier conviction.
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S.E.C. Report Details Lapses i
