How Dean Vagnozzi’s Clients Lost Bets On The Dead

Philadelphia Inquirer (PA)

Since financial adviser Dean Vagnozzi was charged with fraud in a government lawsuit in July, he has been castigated by regulators for how he steered customers to Par Funding, a Philadelphia lender founded by a twice-convicted felon. Par Funding suspended payments to investors for two months this spring, then cut their returns by more than half.

It turns out that Par is not the only Vagnozzi investment that has disappointed.

Emails obtained by The Inquirer show that Vagnozzi told investors earlier this year he was sorry about the "life settlement" investments he has also sold, deals in which investors bet on the life insurance policies of the elderly.

"It goes without saying," Vagnozzi wrote, "I apologize for how poorly this fund has performed."

With his heavy radio advertising and free steak sales dinners, Vagnozzi, 51, whose offices are in King of Prussia, has touted alternatives to Wall Street for more than 15 years.

One was Par Funding, in which investors financed high-interest cash advances to merchants. The lawsuit by the U.S. Securities and Exchange Commission names Par Funding, its owners, Vagnozzi, and others as defendants, saying that they misled investors about Par's high default rate and an owner's criminal past as a grifter. They deny the accusations.

Since 2010 Vagnozzi has also promoted the life settlement funds, in which investors buy life insurance policies from elderly people who have sold them cheap for cash.

For Vagnozzi and his clients, life settlements have been a bumpy road. His record is marked by lawsuits, a $95,000 regulatory punishment, Vagnozzi's admission that some funds haven't performed as expected and recent complaints from some investors that others haven't delivered, too.

Vagnozzi and his lawyers didn't respond to questions for this article.

Supporters of life settlement investments say they are a boon for policyholders who need cash now and investors who profit well by supplying it. Though an unusual business -- one Vagnozzi investor calls it "creepy" -- the field is thriving.

In these investments, buyers purchase life insurance policies, typically from aging people who no longer want their heirs to collect, but would rather have cash up front, even if they receive less than their death benefit. They often sell the policies to middlemen, who in turn sell them to investment funds, like those run by Vagnozzi. Shares in those funds are then shopped to individual investors.

The investors must pay the premiums to keep up the policies, but collect the full amount when the sellers pass on. The faster sellers die, the bigger the payoff.

Vagnozzi's main policy source at first was a Texas firm, Life Partners Inc., a pioneer in acquiring and marketing policies. It later collapsed into bankruptcy amid SEC charges of fraud. In the 2020 emails obtained by The Inquirer, Vagnozzi acknowledged a simple problem with funds containing those early policies: Sellers hadn't died fast enough.

"The life expectancies were terrible," he wrote investors. "No other way to say it."

One early investor was Robert Sullivan, 60, manager of a Philadelphia transportation company. He was among a group who, in 2010, each put an average of nearly $50,000 into the first of Vagnozzi's life settlement funds, called Pillar 1. The hope was to turn their money into at least $70,000, as the old people died on schedule.

Only they didn't. A decade later, Sullivan says, the fund has paid back less than half the original investment. "We get a few checks periodically," he said, "but I'd have been better holding on to my company stock."

Life Partners founder Brian Pardo lived well in Waco, Texas, for a time. Pardo bought four planes and a yacht along with such artifacts as replicas of an ancient Egyptian sarcophagus and a pharaoh's throne. His business eventually sold $2.4 billion in policies to 20,000 investors.

But in 2010 the Wall Street Journal reported that Pardo's firm was relying heavily on an assembly-line doctor who was systematically under-predicting life expectancies. Life Partners' sellers were living a lot longer than predicted -- very good for them but hard on investors paying years of premiums without collecting death benefits,

In 2012, the SEC followed up on the Journal article with a lawsuit accusing Life Partners of fraud and Pardo of covering up the inaccurate life estimates.

The Texas firm declared bankruptcy in January 2015, a month after a judge fined it $38 million in the SEC case. Pardo quit. Now 77, he has been socked with penalties totaling $28 million. Pardo hasn't paid. "Brian is broke," his Houston lawyer, Brent Perry, said last week.

Vagnozzi kept selling investments in policies purchased from Life Partners despite that firm's troubles. One investor told The Inquirer he put in his $50,000 at Vagnozzi's urging in February 2015, a month after the bankruptcy. He claimed, "The issues with Life Partners weren't disclosed to me."

Two other investors, Scott Bennett and his wife, Juli, invested in 2013, after the SEC suit, but before the bankruptcy.

In early 2015, the Chester County couple were featured in a suburban newspaper touting Vagnozzi's acumen. The headline read: "Montgomery County investors double their money sooner than expected." The photo showed the smiling couple and Vagnozzi holding a giant mock check.

It was true, as far as it went -- Bennett said one policy, of more than 100 in the investment, had paid off at twice what investors had put in. But for his fund, Bennett said, that was the last big payout. After seven years, he said, investors have yet to get back what they put in

Separately, in a last bit of litigation in the overall Life Partners scandal, a trustee for its creditors is suing Vagnozzi and scores of other Life Partners salespeople to claw back their commissions. The suit, seeking $1.25 million in commissions that Vagnozzi was paid 2009 to 2014, is to go on trial next year.

After Life Partners, Vagnozzi's firm found new companies from which to acquire more policies, notably from Fort Washington-based Coventry First. It's the largest firm in the industry, according to annual data compiled by the Life Settlement Report, the industry newsletter.

Vagnozzi sold investors additional shares in funds bearing the Pillar name and based on life insurance policies. In addition, he put investors into new ventures that combined life insurance buys with Par Funding. In all, Vagnozzi raised over $50 million from more than 300 investors in life settlements between 2010 and 2019, according to SEC documents.

Some investors in Vagnozzi's more recent life settlement funds say their returns have also been slower and less than expected.

One, Pillar 8 Life Settlement Fund LP, is made up of policies that cost investors a total of about $10 million, according to data shared with The Inquirer by an investor. The participants were told they stood to collect death benefits of about $17 million.

The aging sellers had an average life expectancy of 34 months, dating from 2017, investors were told. Under such a forecast, investors should have received about half their payout by now. But that hasn't happened, investors said.

"I'm in Pillar 8. We have had one death, no payout to us -- they need the money [from that settlement] to pay premiums" on other policies, said another investor, Dale Hood, a Montgomery County health insurance salesman. "Most of the people have reached their expected maturity. But medical technology is keeping them living."

He's still confident his investment will pay off eventually.

Jim Wollyung, 64, a retired Philadelphia trucking company employee, has invested $900,000 in Vagnozzi ventures since 2018.

He put $400,000 of that into a fund mostly invested in life settlements. Fund documents show that he was among 99 investors who put up about $12 million and were told they could reap $21 million. Half the 22 policies were to come due in 2020, So far, the documents say, he has received payouts for only three deaths. His payback: $31,000.

When two more policyholders died this year, he says, the Vagnozzi rep who sold him the fund told him there wasn't enough money to pay him.

"They died, but I didn't get paid," Wollyung said.

Two weeks before the SEC brought its sweeping complaint involving Par Funding and its merchant cash advances, the agency faulted Vagnozzi's sales pitches for life settlements.

On July 14, Vagnozzi and one of his companies agreed to pay a $95,000 penalty to settle accusations that he sold $32 million in Pillar funds to 339 investors without registering his products with the SEC as securities.

Many buyers, the agency found, lacked the wealth that the SEC rules require to make such investments. And the agency's order said his heavy media buys and the dinners violated its rules limiting sales to the public when a security is not registered.

(In all, Vagnozzi has agreed to pay $1.1 million since 2018 to resolve complaints from federal and state regulators.)

Vagnozzi didn't admit any wrongdoing. In a note to clients, he summarized the SEC order this way: "All they can say is they don't like my advertising methods."

In its more recent lawsuit, the SEC cited that as an example of his repeated misrepresentations. "That is not what the order says," the agency said.

As life-settlement payouts drag on and premium costs rise, investors have been left frustrated.

Wollyung said he has lots of questions for the next Vagnozzi free dinner.

Another investor -- a suburban statistician who put $75,000 in one of the life settlement funds -- did some ghoulish fact-checking. (He asked not to be named, saying he was embarrassed about his investment.)

Working with fragmentary information from fund papers, partially redacted names, ages, and the like, he searched on Google to see whether the insured had died. He found few leads but is still puzzled by the lack of payments. He expected a quicker payout.

"Some of these are elderly people," he said. "We're in a pandemic."

For some life settlement investors, the big jolt came this February when Vagnozzi wrote acknowledging the poor performance.

Vagnozzi told them not to worry, though. He could move their remaining investment into something with a higher return. "I am arranging to pay you 17% !," he said.

His new pitch was for investments in Par Funding, the business the SEC now says was fraudulent.

"THIS IS A 'TAKE IT OR LEAVE IT OFFER.'" Vagnozzi wrote in February, in capital letters.

Many investors, weary of slow returns, agreed to the switch. But Vagnozzi later called it off. Some now say they dodged a bullet. By April he was writing that "Par Funding appears to be insolvent."

Par could not pay investors interest and principal in April and May. When checks resumed, the rate was just 4%, half the previous one. There would be no 17% return.

The life settlement investments have some investors rueful. One is John Lindtner, 49, a Chester County contractor. In an interview, he said was disappointed in the returns from a Vagnozzi fund but hoped at least to get his money back.

He invested in the life settlements in 2015 after attending one of Vagnozzi's free meals. He posted a comment about that last week on Facebook: "That was the most expensive dinner I ever had."

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