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Still reeling from recent setbacks from a federal lawsuit in Miami and an action by the state Department of Insurance, a Jacksonville, Fla.-area viatical company now faces allegations that it sold shares in life insurance policies after the policies had been rescinded by the carrier. But a state regulator says plaintiffs in the Palm Beach Circuit Court suit shouldn’t expect to collect much money from the company, because it doesn’t have much. Meanwhile, the Insurance Department, which in May revoked the license of Future First Financial Group Inc. to solicit new business in Florida, is considering what additional action it might take against the Ponte Vedra Beach-based company. In a class action filed July 11, Bruce Hulin, who lives in the West Palm Beach suburb of Wellington, claims that he and others bought fractional shares from Future First in a life insurance policy written on a man named Efrem Suarez by Boston-based John Hancock Mutual Life Insurance Co. Hulin invested $55,412 for at 15.7 percent interest. His lawsuit says that at least 18 other investors purchased a piece of the same policy. Hulin says he expected to receive a death benefit of $78,686 when Suarez died. Some investors purchased fractional shares in several different policies, says Hulin’s lawyer, Robert Hackney, a partner at Hackney & Miller in Palm Beach Gardens, Fla. But Hulin alleges that Future First didn’t tell him that John Hancock rescinded its policy on Suarez in February, making his investment and that of others worthless. The rescission came as part of a settlement in a federal lawsuit by John Hancock against Future First. Selling shares in a rescinded policy amounts to deceptive and unfair trade practices under Florida law, Hulin’s complaint alleges. Efforts to reach Future First spokeswoman Debra Kloeppel Wotiz for comment were unsuccessful. INDUSTRY SHIFT Viatical companies like Future First buy life insurance policies at a discount — usually paying 10 cents to 15 cents on the dollar — from people who are terminally ill, but also from seemingly healthy senior citizens. The 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. Viaticals became popular around 1990 as a way of helping the terminally ill, especially AIDS patients, while providing investors with substantial returns. It was a way of putting cash into the pocket of the policyholder, called the viator, for immediate needs. The viatical broker 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 with the advent of medicines that have added years to the lives of AIDS patients, viaticals became less lucrative, and viatical brokers began selling the life insurance policies of older policyholders who weren’t terminally ill. As part of this shift, it became increasingly popular for policyholders to immediately sell their policies to investors. Such arrangements are known as wet-ink viaticals, because the ink hasn’t even dried on the contract, so to speak. But insurers and regulators fear that the growth of wet-ink viaticals, left unchallenged, could hurt the life insurance industry and encourage fraud. That’s because life insurance policy applicants may be more inclined to lie about their health status — a practice known as clean-sheeting — if they intend to immediately sell their policy to investors, insurance regulators say. The Florida Department of Insurance has stepped up its scrutiny of all viaticals in recent years. While the state has regulated viaticals since 1996, it has no statutes that specifically address the wet-ink variety. “[Viatical brokers] turned a legitimate investment that served a social good into a fraudulent practice,” says Peter Kramer, a partner at Steel Hector & Davis in Miami who represented John Hancock in the federal lawsuit against Future First in Miami. “You’re dealing with billions of dollars.” WORTHLESS INVESTMENT In December 1999, John Hancock sued Future First in U.S. District Court in Miami, claiming that a man bought two life insurance policies from the insurer with the express intent of reselling them to Future First. In February, as part of a settlement agreement reached between John Hancock and Future First, U.S. District Judge Paul Huck issued a final judgment that required 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 wet-ink viatical arrangements. Hulin learned about Suarez’s policy being rescinded in a letter last month from the Florida Insurance Department. The letter stated that the rescission rendered that policy “to be of no force or effect, as if it had never been issued.” His lawsuit, filed on behalf of investors in five policies that were brokered by Future First and later rescinded by John Hancock, estimates that the class of investors in Florida numbers in the hundreds. Life insurance carriers typically have a two-year contestability period during which they can investigate whether a policyholder has given them truthful information and rescind the policies if it’s determined the information was false. “In some cases, we think people were induced [by Future First] to [buy] policies in order to sell them,” Hackney says. Hackney says he has spoken to 20 to 30 investors in Future First viaticals, and they have invested from $30,000 to $200,000 each in rescinded insurance policies. The face value of the policies is between $2.5 million and $3 million, says Michael Davidson, senior attorney with the Florida Department of Insurance. Hulin and others who may be added to his lawsuit shouldn’t expect to recover much money, Davidson says. “If they get back a dime on the dollar, they’ll be lucky.” In May, the Insurance Department revoked Future First’s license to solicit new business in Florida and, in doing so, subpoenaed the company’s bank records, Davidson says. “There is virtually nothing” left in those bank accounts, he says. “The money has been transferred out,” he says. Future First’s former vice president, William Sweeney, is scheduled to be tried in U.S. District Court in Jacksonville, Fla., in November on 81 counts of grand theft and one count of organized fraud in the marketing of policies valued at $6.9 million. CHEATING NATIONWIDE Future First is not the only viatical broker to be accused of cheating investors. Thousands of investors nationwide have been defrauded by viatical companies of more than $400 million over the past three years, according to the North American Securities Administrators Association in Washington, D.C. Employees of a viatical company in Ohio are accused of cheating hundreds of investors nationwide out of at least $100 million. In Texas, a broker allegedly scammed investors out of a similar amount. In other states, including Vermont, Maryland and Oklahoma, viatical companies and their employees also are accused of fraudulent practices. In South Florida, Frederick Brandau, the president of a Broward County-based viatical company, was sentenced to 55 years in prison last year following his conviction on mail and wire fraud and money laundering charges. His company, Financial Federated Title & Trust, spent $100 million of viatical investors’ money on luxury cars, boats and properties, plus jewels and two helicopters, authorities alleged. And in January, an insurance salesman who acted as an agent for Delray Beach, Fla.-based viatical broker Dedicated Resources Inc. was ordered by a Palm Beach Circuit Court judge to pay $943,000 in fines and restitution for conning investors into thinking their investments were guaranteed. NEW NAME, NEW DEMAND While Future First is prohibited from obtaining new business in Florida, it is required to service existing viatical investors. The company’s recent conduct in that regard has the Insurance Department trying to determine what further action it can take against the company, Davidson says. Many of the company’s investors recently received letters informing them they must pay six months worth of premiums and service fees on the life insurance policies in which they already have invested money. Otherwise, Future First warned, the investors risk losing their entire investment. The letters came from a company called Life Settlements Service Corp. Life Settlements is a Georgia-incorporated subsidiary of Future First registered to do business in Florida. It is servicing Future First’s existing clients by monitoring viators and processing death claims for investors. The company essentially is Future First under a different name, Davidson says. Randy Stelk resigned as president of Future First and took the same position at Life Settlements. The latter company’s staff is largely made up of other former Future First employees, Davidson says. Life Settlement’s offices are across the hall in the same building where Future First is located. The problem with asking investors to pick up the premiums on the life insurance policies is that Future First had promised investors in their contracts that it would pay the premiums on the viators until they died, Davidson says. Life insurance policies brokered by Future First that have multiple investors — such as the one in which Bruce Hulin invested — could now lapse if any one of the investors declines to pay a share of the premiums. Florida law isn’t precise about what actions the Department of Insurance can take against a company whose license it already has revoked, Davidson says. The department is researching the matter. “Many of these investors are elderly people who invested their life savings,” Davidson says. “Many of these viators will outlive them. This thing has been turned on its head.”

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