6 Years After $25M Scam Unraveled, Victims Still Wait For Funds

Nov. 03--The sales pitch to investors was unusual, a little ghoulish even, but also tempting: Buy a share in a total stranger's life insurance policy, then reap fat profits when the person dies.

Hundreds of Northern Californians bought into the death benefit investment program marketed by a Redding company a decade ago, pouring in an estimated $25 million.

It was a scam. Federal authorities swooped in six years ago, shut down the company and tried to recoup the investors' money.

Now the case is winding down. The defendants have pleaded guilty and the first prison sentence was just handed out. A Michigan businessman tied to the scheme, Mark Wolok, was given a five-year term for securities fraud in U.S. District Court in Sacramento.

Investors, though, remain empty-handed. Although the effort to recoup funds isn't over, court records suggest investors are unlikely to get much back.

"I haven't seen a dime and I'm not sure I ever will," said John Edlund, a Sun City Roseville resident who invested $50,000 with the Redding firm.

Edlund purchased a financial instrument called a "viatical." The concept was perfectly legitimate -- a life insurance policy converted into an investment. Viaticals, also known as life settlements, arose 30 years ago, when dying AIDS patients began selling their life insurance policies to raise cash. They've become a big business, with Wall Street financial firms investing in them.

But authorities said the owners of Redding-based Secure Investment Services lied to investors about the risks involved and improperly used their money to prop up a rapidly crumbling business. The losses to investors will run into the millions.

The toll has been more than financial. Wolok's business partner in , a man named David Goldenberg, committed suicide two months after he and the other defendants were indicted in 2007. The principal of Secure Investment Services, 76-year-old Donald Neuhaus of Redding, died of natural causes soon after.

In Roseville, the case has turned neighbors into enemies. Several of the defrauded investors were Sun City residents who were lured into the scheme by one of their own, a sales agent and fellow resident named Robert Koppel. After pleading guilty to securities fraud, Koppel was sentenced Oct. 25 to three years' probation. He returned to a frosty reception from some of his Sun City neighbors.

"It hasn't been comfortable," said Koppel, 84. "I haven't been confronted by anybody, any of the investors, but it's pretty clear that it's been a wall between us, so to speak. And it has affected my family."

Koppel himself invested $64,000 in the program and said "I'm as much a victim as anybody else."

Prosecutor Lee Bickley, an assistant U.S. attorney, said Koppel "at least at some point" believed the investment program was for real. But she said the evidence showed that eventually Koppel realized the investment plan was fraudulent and he knowingly misled investors. Court records show that Koppel sold more than $2 million worth of viaticals.

It's not surprising that a community like Sun City was fertile ground for the Redding company; officials said many of the investors were in their 50s or older. Experts say senior citizens, because of their advanced age, tend not to be squeamish about investing in something like another person's death benefit.

What's more, the investment was sold as perfectly safe. Koppel made presentations to Sun City's investment club under the title, "Double Digit Returns With No Market Risk," according to Edlund.

Authorities said Secure Investment's investors were told that all the policyholders had been examined by a doctor, who provided forecasts of how soon they would die. Funds would be set aside, in escrow accounts, to keep up premium payments on the policies so they wouldn't lapse and become worthless. Finally, a bonding company from Michigan would pay investors their guaranteed returns if the policyholders lived longer than expected.

The doctor was a fake. Most of the policyholders lived longer than expected. The bonding company, run by Wolok and Goldenberg, was a sham.

The entire scheme unraveled. Secure Investment needed more cash to keep those policies active and began using dollars from new investors to prop up the old policies belonging to earlier investors. Because of that, federal investigators labeled Secure Investment a Ponzi scheme.

There wasn't much left of Secure Investment when the authorities got a court order seizing its assets in August 2007. Despite taking in millions from investors, the Redding company had just $440,000 in cash.

A court-appointed receiver was brought in to convert the life insurance policies into cash in order to repay investors. It's proved to be daunting.

The receiver, a Dallas attorney named Michael Quilling, said in a recent court filing that he's been able to generate about $8 million, mostly in insurance proceeds, after some policyholders died. But he's spent nearly $10 million on premiums to keep policies from lapsing and is nearly out of cash.

In short, the receiver has run into the same problems as Secure Investment -- the premiums keep coming due, and the policyholders haven't died quickly enough.

"Unfortunately, there's no science to any of this," said John Yun, a lawyer with the Securities and Exchange Commission who has worked on the case.

Quilling has found an investment firm willing to pay $5 million for the remaining life policies on the Redding firm's books, according to a court filing. But most of the proceeds would go to repay $4.3 million he borrowed from a bank to pay premiums.

SEC officials declined to predict how much money investors can expect. "The game's not completely over yet, so we'll see," said Michael Dicke, associate regional director at the SEC's office in San Francisco. Quilling couldn't be reached for comment.

As part of his criminal sentence, Wolok was ordered to make restitution totaling $17 million, but investors shouldn't count on that. "From our review of his bank records and what we know of this person, he doesn't have the capacity," Bickley said.

Besides Wolok and Koppel, four others have pleaded guilty in the case. They include Neuhaus' daughter, Kimberly Snowden of Redding; and three former sales agents, Robert and Barbara Eberle and Clifford Palm. All are awaiting sentencing.

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