Texas Seizes Assets of Life Settlement Company
Charged with Defrauding Seniors
National Life Settlements’ Howard G. Judah Jr.,
Gregory F. Jablonski falsely guaranteed lucrative investment returns
Feb. 27, 2009 - A receiver appointed by a Texas
judge has seized the assets of National Life Settlements of Houston. The
Texas State Securities Board announced the seizure, charging that the
company sold more than $20 million in fraudulent life insurance
settlement contracts to mostly senior citizens that included retired
state employees, retired teachers and other Texas investors.
State District Court Judge Suzanne Covington of
Travis County appointed the receiver at the request of Texas Securities
Commissioner Denise Voigt Crawford and Texas Attorney General Greg
Abbott, according to a report in the
National Underwriter, an online news source for life and health
insurance agents.
The court-appointed receiver has taken control of
about $19 million in bank accounts under the control of NLS and company
officials, according to officials in Crawford’s office, the
National Underwriter reports..
Texas AG Abbott announced on February 13 that he
had charged the owners of two investment plans with orchestrating a
fraudulent scheme that targeted retirees and teachers. According to the
state’s enforcement action, Howard G. Judah Jr. of Houston and Gregory
F. Jablonski of Castle Rock, Colo., falsely guaranteed lucrative
investment returns, misrepresented their “life settlement” policy
investment offerings, failed to disclose material information to
investors, and committed multiple violations of the Texas Securities Act
“At a time of extraordinary market volatility, the
defendants attempted to take advantage of anxious investors by falsely
promising safe investments and guaranteed returns,” Abbott said.
|
What Are Life Settlements?
Life Settlements allow a life insurance
policy owner to sell an existing policy to a financial
institution in exchange for an immediate lump sum cash
settlement.
The amount paid for the policy is a
discounted percentage of the policy's net death benefit and
represents the present day value of the policy.
This purchase price is determined by
considering the insured's estimated mortality (life expectancy)
and the associated cost of premiums to keep the policy in force
for that timeframe. (National Life Settlements) |
“Today’s enforcement action charges the defendants
with failing to make required disclosures, selling unregistered
securities and other violations of the Texas Securities Act. To protect
the retirees and teachers who entrusted their savings to this investment
scheme, the Office of Attorney General obtained a receivership order,
resulting in the seizure and assessment of the defendants’ bank
accounts.”
Securities Commissioner Crawford, added: “So-called
life settlements – interests in the death benefits of older people – are
highly speculative investments, and investors should not be misled by
claims that they offer safe, guaranteed returns such as a certificate of
deposit.”
According to State Securities Board investigators,
Judah, a three-time felon convicted of financial crimes, and Jabonski
each formed a limited liability company in their respective states, both
known as National Life Settlements, LLC.
Together they marketed and sold three principal
investment schemes that are identified in the state’s enforcement action
as secured notes, the Immediate Income Investment plan and membership
interests in special purpose limited liability companies. Neither the
defendants’ securities - nor their salespeople - were registered with
State Securities Board, as required by law.
The defendants’ secured notes program purported to
offer notes – written promises to pay sums of money – secured by life
settlement policies. In life settlements, a life insurance policy owner
sells the policy to a third party for more than the cash surrender value
offered by the insurance company. The purchaser then must make premium
payments and receives the payout upon the insured’s death.
According to the state’s enforcement action,
investors were told that their investments were guaranteed, had little
or no risk, and would deliver up to a 10 percent annual return on the
investment. Like the secured notes program, the Immediate Income
Investment plan purported to have little or no risk. Investors were told
their funds would yield a fixed rate of return and feature bi-weekly
income payments.
The defendants’ marketing materials claimed that
National Life was “among the most secure, stable, and highest paying
investment programs available today.” National Life also claimed that
certain products guaranteed a 10 percent rate of return, and promised
that its investment opportunities were “not subject to market
volatility.”
According to the state’s enforcement action, both
statements constitute a “fraudulent practice” under the Texas Securities
Act.
Between November 2006 and December 2008, the scheme
raised approximately $20 million from 240 individual investors. That
amount includes more than $2.5 million from employees who withdrew
assets from their pension funds to invest in the defendants’ investment
scheme.
Of the nearly $20 million that the defendants
raised from investors, approximately $3.16 million was used to
compensate National Life’s unregistered securities salespeople. It is
illegal to pay commissions to securities salespeople who have not
registered with the State Securities Board. Nearly $900,000 has been
transferred to Judah and his family members, including $230,000 for
Judah’s salary. More than $650,000 was paid to Jablonski and his
company, JCJ and Associates.
|
This notice for
National Life Settlements appeared on the website of Strategic
Benefits Marketing Group. |
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Approximately $9.1 million – or about 45 percent of
the investors’ money – has been transferred into an account owned by
NATT, LLC, also controlled by Judah and Jablonski.
The defendants’
transfers into the NATT account, which the investigation found were not
disclosed to investors, began in June 2007.
Despite the guaranteed
annual investment returns and bi-weekly payments promised to investors,
National Life has only paid investors approximately $3 million over the
two-year period.
Court documents filed by the Office of the Attorney
General indicate that the defendants’ Internet-based advertisements and
false statements also constituted Texas Securities Act violations.
For
example, the defendants wanted investors to think their investments were
subject to regulatory oversight. Marketing materials produced by the
defendants falsely stated that their products were regulated by the
Texas Department of Insurance. And they furthered their attempts to
project security and legitimacy by falsely claiming that National Life
received over $60 billion in “commission checks” from the Federal
Reserve in 2008.
According to investigators, the defendants were
poised to launch a third scheme that would sell membership interests in
special purpose limited liability companies. Investors were told that
their investment would yield a tax free return on investment as high as
11 percent annually.
