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Future First Financial Group, a Ponte Verde Beach, Fla.-based viatical company, has resolved two legal matters challenging the controversial practices of the viatical industry. Late last month, Boston-based John Hancock Mutual Life Insurance Co. settled a two-year federal court fight in its favor to rescind several life insurance policies it claims were resold to Future First Financial Group in Ponte Verde Beach as part of a viatical-related scheme to defraud the insurer. And in a separate matter, an administrative law judge in Tallahassee, Fla., has concluded that Future First’s former vice president for underwriting, William Sweeney, was responsible for the company’s failure to inform investors about false information it received from people whose life insurance policies it had purchased. Late last month, as part of a settlement agreement reached between John Hancock and Future First, U.S. District Court Judge Paul Huck of the Southern District of Florida issued a final judgment that requires Future First to return several life insurance policies to John Hancock in exchange for the premiums it paid to the insurer. Future First had acquired the policies from the policyholders through what is known as wet-ink viatical arrangements. Wet-ink viaticals, which have become increasingly popular in recent years, are deals in which life insurance policyholders immediately sell their policies to investors after buying them before the ink dries on the insurance contract, figuratively speaking. Viatical companies buy the policies at a discount — typically 10 cents to 15 cents on the dollar — from people who are terminally ill but also from seemingly healthy senior citizens. This is a way of putting cash into an individual’s pockets for immediate needs. The purchaser then picks up the premium payments. In this way, people can profit from their own life insurance policies, rather than having their beneficiaries and heirs enjoy the money. But insurers and regulators fear that the growth of wet-ink viaticals, left unchallenged, could hurt the life insurance industry and encourage fraud. The Florida Department of Insurance has stepped up its scrutiny of all viaticals in recent years, amid allegations that, among other things, policyholders have lied about their health status or about their intention to resell their policy for a profit. Wet-ink policies are sold to investors, who essentially are betting that the insured will die sooner rather than later so they can earn a larger and quicker return on their investment. Consequently, there is the fear that applicants who intend to sell their policies are more likely to lie about their health — a practice known in the industry as “clean-sheeting.” While Florida has regulated viaticals since 1996, it has no statutes that specifically address the wet-ink variety. In December 1999, John Hancock filed suit in U.S. District Court in Miami against Future First seeking to rescind two insurance policies that had been issued to Jack Matalon of Bay Harbor Island. The company claimed that Matalon, then 70, purchased the policies — valued at $1 million and $2 million respectively — with the express intent of reselling them to Future First. The carrier claimed in its lawsuit that had it known of Matalon’s plan, it would have rejected his application, along with the application of three others whose policies also are being rescinded as part of the settlement agreement. John Hancock also contended that Matalon had lied on his application about his criminal history, which came to light only after the contestability period had expired. Future First, which filed a counterclaim, contended that the life insurance policies could not be rescinded because once they were issued, the policyholder had an unconditional and absolute contractual right to do whatever he or she wanted with the policy. In December, Huck denied motions for summary judgment filed by both parties, and scheduled the case to go to trial in April. He found that there was a legitimate dispute over whether Matalon intended to keep or sell the policies when he first purchased them. Huck’s order last month was the result of a settlement agreement reached between the parties, says Peter Kramer, a partner at Steel Hector & Davis in Miami who represents John Hancock. Other terms of the agreement are confidential. Although the settlement agreement sets no precedent for similar cases, Kramer says it will send a message to other companies selling wet-ink viaticals that if they continue to engage in this business, they risk having the life insurance policies rescinded. “It’s a victory for the insurance industry and ratifies that the industry will not allow these illegal and improper transactions,” Kramer says. Future First’s president and chief executive Randy Stelk says settling with John Hancock was a pure business decision. “It gave us the opportunity to move forward and protect our investors,” Stelk said through a spokesman. But the company has no plans to leave the wet-ink viatical business, says company spokeswoman Debbie Wotiz. In fact, it’s focusing attention on purchasing insurance policies from senior citizens because it sees strong growth prospects. “It’s an industry that has a lot of benefits to many people who otherwise might not have money for long-term health care,” she says. Future First paid about $60,000 to acquire just one of Matalon’s policies. As to the issue of that lost investment, Kramer says that’s a separate issue and not one that concerns John Hancock. “It’s something they will have to work out with the insured who sold them the policy,” he says. Apart from the dispute with John Hancock, Future First has been under investigation by the Florida Department of Insurance for allegedly reselling to investors the insurance policies of those who lied about their medical conditions on their applications, then failing to rescind the policies after learning that the information was false. The company did not notify investors or the Department of Insurance of what it had learned until it was the target of a state audit, according to a 62-page report issued last month by an administrative law judge in Tallahassee. On Feb. 18, Judge P. Michael Ruff in Tallahassee found that Sweeney was mostly responsible for these problems. Sweeney was indicted in 2000 by a statewide grand jury and charged with grand theft and organized fraud related to the marketing of $6.9 million in fraudulently obtained policies. That case is pending in St. Johns County, Fla. Ruff found that Future First, which was licensed as a viatical settlement provider by the Florida Department of Insurance in December 1997, has since cleaned up its act and has “acted responsibly.” While he did not urge revocation of the company’s license, Ruff recommended that Future First’s license be placed on probation for two years and that the company be fined $10,000.

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