course, there's money to be made.
As recently as 1990, this was a small, arcane business, amounting to less than $100 million of viaticated policies. But it has grown to more than $1 billion. Consequently, criminals have taken notice and moved in, so much so that law enforcement authorities say viatical investment scams have become rampant, and rank among the top-ten investment frauds being perpetuated.
Viatical scams take different forms. Some are as blatant and straightforward as selling policies to investors on fictitious patients, or else selling legitimate policies over and over again. One viatical investment firm collected $115 million in investor money, but only $6 million was used to buy life insurance policies. The promoters found various other uses for the balance of the money. They bought twenty-five homes, thirty-four luxury cars, two helicopters, three motorcycles, and several boats.
Other viatical scams are more elaborate and cheat both the insurers and the investors. In these cases, scam artists recruit terminally ill people and help them obtain life insurance by lying on the applications about their condition. This process is known as "clean sheeting." It doesn't work with large policies, because medical exams and blood tests are required, but insurance companies skip those details with small policies.
These clean-sheeted policies are then immediately sold to investors. They're also called "wet ink policies," because the ink on the contract is barely dry when the policy is sold. Once the policyholders die, these policies are often contested as being fraudulently obtained, then canceled. Crooks in California obtained clean-sheeted policies amounting to more than $11 million before being caught.
Investors have been snapping up these policies. Thieves pitch them as a safe, high-return investment. And they add that the investor is engaging in a humanitarian act, providing desperately-needed funds to the terminally ill.
The truth of the matter is, even legitimate viatical investments are risky. Chronically ill people may live a lot longer than was estimated, cutting down on the yield to investors. New AIDS drugs and other medical breakthroughs work against your investment. In addition, many of these policies are term policies, and if the person outlives the term, there is no death benefit at all. An eighty-four-year-old California woman invested $85,000 in the hope of receiving $139,000 when a policyholder died. The expectation was that he would die within a year. Years later, he was still alive. He might outlive the woman.
WHAT TO CHECK
Given that you can lose money on these investments if they're legitimate, imagine what it's like to invest in a scam. There are some telltale signs to be aware of, though none are guarantees. Many legitimate viatical investments are themselves insured, but no viatical scam is, at least not with any real insurer. A legitimate investment will allow you to pay your money to a reputable escrow agent; a scam artist won't. If it's on the up and up, the purchase agreement should state that the insurance policy you're investing in is past the period of contestability, generally two years from when it was issued. The best protection of all, though, is only to deal with a reputable and large viatical broker. And realize that you're making a speculative investment no matter what.
THE MYTH OF THE INNER CIRCLE
There's a natural inclination by people who don't have a lot of money, to think that people who do have a lot are privy to investment opportunities that are closed to them. It wouldn't surprise them to learn about clandestine securities peddled only to the rich, for suspicions about the government and financial institutions are widespread. Criminals are well aware of such suspicions, and exploit them with appalling consequences for investors.
In the little town of Mattoon, Illinois, population 18,500, a sixty-six-year-old retired electrician started an investment fund called the Omega Trust and Trading, which promised a fifty-to-one return. According to the fund's literature, its head was an international banker who had worked for Fortune 500 companies (when investigators interviewed him, he couldn't quite remember their names) and was one of a handful of people in the world who had the know-all and ability to conduct secret multimillion-dollar trades.
It was not an original thought. Many investment schemes tell people there's a secret banking system in which "prime banks" and the wealthy participate. The returns are well beyond what ordinary people can realize, as much as 70 percent a week. Ordinary people can share in the bounty if they pool their money and allow someone connected to this system to invest it for them.
A common pitch is, you're asked