Viatical Seller Pleads Guilty to Fraud Charge

The former president of Mutual Benefits, a company accused of defrauding investors out of nearly $1 billion, pleaded guilty to securities fraud.

Peter Lombardi, former president of a Fort Lauderdale company that allegedly bilked some 28,000 investors out of nearly $1 billion, pleaded guilty to one count of securities fraud on Monday in federal court.

The legal team representing Maurice “Hank” Greenberg said Wednesday that Eliot Spitzer has dropped “key” charges against the former American International Group chief executive. However, Darren Dopp, a spokesman for the New York Attorney General, said the “guts” of the civil complaint against Greenberg remain, including charges related to transactions involving Berkshire Hathaway’s (BRKA) (BRKB) General Re division.

Lombardi faces up to 20 years in prison and a fine of up to $5 million. He also is on the hook for $956 million restitution owed to investors victimized by the purported fraud at Mutual Benefits, U.S. Attorney R. Alexander Acosta said in a statement.

Lombardi also has agreed to cooperate with federal prosecutors in their criminal case against the company’s principals, including brothers Joel and Leslie Steinger.
From 1994 to May 2004 Lombardi was president of Mutual Benefits, which purchased life insurance policies from the elderly and terminally ill at a discount and then sold the predicted payouts to investors. Such deals with the terminally ill are called viatical settlements and known as life settlements with the elderly.

Viatical and life settlement sellers say the deal offers the elderly or dying person a chance to use the money before death; the investor profits from the difference between the lump sum payment and final policy payout.

Mutual Benefits shut down in 2004 amid allegations the company misrepresented the level of risk to investors. A lawsuit by the Securities and Exchange Commission was settled last year for $25 million. Now the government is trying to build a criminal case.

LIFE EXPECTANCY

Federal authorities allege Mutual Benefits misrepresented the life expectancy of the terminally ill or elderly—and people lived much longer than represented.
As a result, the government claims, some 80 percent of the life and viatical settlements sold by Mutual Benefits never matured and only 5 percent matured within the predicted life expectancy. Mutual Benefits executives have said the longer life expectancy is due to better medical treatment that, for instance, allows AIDS patients to live longer.

Federal prosecutors also claim that insufficient funds were set aside to pay the expected insurance premiums during the life expectancy of the insured and investors were misled about who was actually leading Mutual Benefits.

They charge that Lombardi was held out to the public as the titular head of the firm while the two Steingers and their brother, Steven Steiner (he changed his name), were actually running the firm.

PREVIOUS CONVICTION

Joel Steinger was previously convicted of federal mail and wire fraud. Leslie Steinger was also previously enjoined by a federal court from further violating the anti-fraud provisions of the federal securities law.

Assistant U.S. Attorney Andrew K. Levi and Special Assistant U.S. Attorney Ryan Dwight O’Quinn are handling the prosecution.

Attorney Roy Black, who is representing Joel Steinger, and Bruce Zimet, who is Leslie Steinger’s attorney, could not be reached for comment.

Lombardi already has paid a $6 million fine to the SEC, said Jon May, Lombardi’s lawyer. The former executive is to be sentenced Jan. 3.

‘‘Peter Lombardi deeply regrets the losses suffered by the investors in Mutual Benefits,’’ said May. ``He wishes to apologize to his family, his friends and to the community and stands ready to accept whatever punishment is imposed by the court.’‘

BY MATTHEW HAGGMAN
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