The Eleventh Circuit Court of Appeals last week affirmed the criminal conviction of an attorney who had been involved in a viatical company’s Ponzi scheme.
The federal appeals court affirmed the conviction of Anthony Livoti, outside counsel for Mutual Benefits Corporation, concluding that the federal government had presented sufficient evidence for the jury to convict him of two counts of mail fraud, conspiracy to commit mail and wire fraud, and conspiracy to commit money laundering. He had appealed his conviction, which led to sentencing of ten years in prison, three years of supervised release, and an order of restitution of more than $800,000.
The court described some of the relevant facts as follows.
Mutual Benefits was a viatical investment company in Fort Lauderdale, Florida, owned by Joel Steinger, Leslie Steinger, Steven Steiner, and Peter Lombardi. A viatical is an investment in which the insured, usually an elderly or terminally ill person, sells his life-insurance policy to an investor. The investor then pays the premiums for the policy so long as the insured lives, and the investor profits if the amount he invests is less than the payout he receives when the insured dies. Mutual Benefits bought viaticals and then sold fractional shares of those viaticals to other investors. Mutual Benefits was responsible for paying premiums on the policies. Livoti, an attorney, served as the premiums trustee for Mutual Benefits. Investors signed trust agreements that made Livoti the owner of the viatical policies and made the investors irrevocable beneficiaries of the policies. As trustee, Livoti was a fiduciary of the investors. He was obligated to represent the investors’ best interests, to protect the premium money, and to use the premium money in accordance with the trust agreements. Mutual Benefits assured investors that its viaticals were safe and profitable investments. Lombardi explained that Mutual Benefits marketed itself as a ‘no risk investment’ with ‘total fixed returns.’ To prove that its viaticals were safe investments, employees told investors and sales brokers that Mutual Benefits used independent physicians to project the life expectancies of the insureds. Because the owner of the policy owed premiums as long as the insured lived, an investor would use the physician’s projection to measure how safe that viatical would be as an investment. If an insured lived longer than expected, an investor would lose money because the total amount invested in that viatical-the purchase price plus the premiums-would exceed the insurance benefit. Although Mutual Benefits touted its projections as 80 percent accurate, Joel Steinger fabricated projections for whatever life expectancy an investor wanted. He then sent the fake projections to a so-called ‘independent’ physician, who endorsed them. Indeed, these fake projections were not even completed before an investor agreed to buy a policy. Mutual Benefits then backdated the physician’s signature. Unsurprisingly, Joel Steinger’s fake projections underestimated the life expectancies of the insureds. About 80 percent of the insureds outlived their projected life expectancies. But Mutual Benefits had to pay premiums as long as those insureds lived. If Mutual Benefits failed to pay premiums for a policy, the insurance company could cancel that policy, and the viatical would become worthless. And the fake projections meant that there was never enough money set aside to pay premiums as they were due. On paper, Mutual Benefits looked like a safe investment, but in fact it was a Ponzi scheme. As money was running out, Livoti tried to keep Mutual Benefits afloat by using money from new investors to pay premiums for policies owned by old investors. . . .
In May 2004, the Securities and Exchange Commission filed a complaint against Mutual Benefits and some of its employees in the district court. . . . The Commission alleged that Mutual Benefits committed securities fraud through its operation of a Ponzi scheme. . . . By the time Mutual Benefits was shut down, it owned over 8,000 policies.
A Law360 news story about the 11th Circuit’s decision is here.