Frequently Asked Questions (FAQ)
- 1. Investors were told ABC set aside separate premium reserves to continue paying premiums on these policies. Can the Receiver just use those premium reserves to pay premiums instead of selling the policies?
Contrary to what it told investors, ABC did not keep separate premium reserves for each policy. Instead, it kept a single premium escrow account that only had $279,571.89 when the Receiver seized it.
Furthermore, ABC did not collect or set aside nearly enough reserves to cover its premium obligations for all policies. As time went on, the premium shortfall worsened and funds from new investors were used to pay premium obligations for earlier investors’ policies. Meanwhile, ABC continued to pay its employees, its sales agents, its brokers, and the companies from which it purchased non-existent bonds. These circumstances created a severe shortfall and, by the time the Receiver was appointed, ABC only had $4 million in cash while its premium obligations amounted to $9.6 million a year and increasing every year after that.
- 2. The policies should have accumulated cash values. Can those be used to pay premiums until they mature?
- The Receiver closely monitors the policies and gets updated calculations of their cash values every month. Even taking cash values into account, the premium amount for all policies still totals $9.6 million a year and will increase every year after that.
- 3. Can the Receiver just continue paying premiums until most or all of the policies mature? Death benefits from matured policies could be used to pay premiums on the other policies.
- That is exactly the course of action that the Receiver pursued in this case. Unfortunately, no policies have matured since the Receiver was appointed. There simply is not enough money left to continue paying the premiums. Furthermore, every dollar we borrow to pay premiums reduces the amount available to distribute to investors in the event there are no maturities during this receivership. Selling all of the policies right now is the only guaranteed way to avoid a total loss.
- 4. Has the Receiver agreed to sell all of the policies for $27.1 million?
- No. As of right now, no one has purchased the policies. The Receiver has only received a bid to purchase the policies for $27.1 million. Several more events must happen before the portfolio is actually sold, as explained more fully below.
- 5. What was the bidding process that resulted in a bid of $27.1 million to purchase all of the policies?
Within days of filing his Unopposed Motion to Solicit Bids for Purchase of Policies and to Set Sale Procedures, the Receiver translated and posted it on his website in both English and Chinese. The Court’s order approving that motion was also translated and posted within days of being entered. Together, that motion and order set the bidding procedures in this case.
Bidding takes place in two rounds. The first allowed all interested parties to pay a fee, sign a confidentiality agreement, view the documents necessary to determine their offer, and submit bids without knowing the amount offered by any other parties. That round of bidding is completed and the highest amount offered for the policies was $27.1 million. The second round of bidding will occur before the Court and allow interested parties to make offers higher than that amount. Even after the bidding process is completed, the Court still has to rule that the final bid is a reasonable amount before the sale can take place.
- 6. When is the second round of bidding?
- The second round of bidding has not yet been set. Once the Court sets a date for it, that information will be translated and posted on the Receiver’s website in both English and Chinese.
- 7. Who can attend the second round of bidding?
- The second round of bidding is open to any interested party. However, they must be prepared at the time of the second round of bidding to present evidence of their ability to immediately pay for the portfolio. If any investors know of someone who might offer more than $27.1 million for the policies, they should notify the Receiver so we can get in touch with that person.
- 8. Can you explain why the Receiver would consider an offer of $27.1 million to purchase policies with a combined death benefit of $250 million?
The Receiver has considered all offers to purchase these policies. Right now, $27.1 million is the highest offer. In part, the amount of these bids reflects the high cost of maintaining these policies with annual premium obligations of $9.6 million this year and increasing every year after that.
No buyer will pay anything close to the $250 million combined death benefit for these polices. The actual market value of these polices is the combined death benefit minus the following costs:
- the cost of all premiums paid until all insureds die
- the interest paid on loans to purchase the policies
- the interest paid on loans to pay the premiums
- the time value of money
- the administrative expenses for evaluating, acquiring, and maintaining the policies
- 9. In Taiwan the Court would have obtained an independent third-party evaluation report to set a minimum bid for the policies. Why was that not done in this case?
- Third-party evaluation reports would cost money and have little value in this case. First, they only reflect one opinion about how much interested parties might pay for the policies. Courts in the United States believe that a competitive bidding process is the only way to determine the actual value and sales price for an asset. Second, the insureds’ health information is not always current enough and reliable enough for a third-party to make an accurate evaluation. The Receiver allowed bidders to examine the available health information and make their own determination about how much they would offer in comparison to other bidders.
- 10. Who are the parties bidding on the policies? Taiwanese investors have heard rumors that an ABC investor made the current bid for $27.1 million.
- All parties participating in the first round of bidding were institutional investment companies. The current offer of $27.1 million was not made by an ABC investor.
- 11. Were investors’ concerns heard and their interests protected in this case?
- The Receiver and Examiner have made great efforts to hear the investors’ concerns and protect their interests. First, the Receiver asked that the Court appoint an Examiner to appear and present the investors’ interests at every step in this process. Second, both have created Chinese-language websites to explain the process and describe all documents that are filed with the Court. Third, both have been open and responsive to investor inquiries and responded with honest answers. Unfortunately, decisions have to be made on the economic realities of this case and no other workable plan has been suggested by any of the interested parties.
- 12. Why are the Taiwanese investors asking more questions than the U.S. and Puerto Rican investors?
- It is clear that the Taiwanese investors have taken more of an interest in the bidding procedures than investors in the U.S. or Puerto Rico. It may be that investors in the U.S. and Puerto Rico generally have more confidence in the Court to protect their interests and oversee fair procedures.
- 1. Do the Receiver and the Examiner have a low opinion of companies in the US that sell viatical and life settlement interests and if so why?
- You are correct in your impression that the Receiver and the Examiner have a low opinion of companies in the US that sell interests in viatical and life settlement insurance contracts. Our low opinion comes from having to watch more than 5,000 people lose money on these investments. We repeatedly get emails and calls from investors who were tricked into investing their entire life savings in these investments only to have the money misappropriated by the principals of the company. We have heard from people who can't buy their medicine, can't pay their rent and who have lost property including one person that lost a family farm that had been their ancestors for over 100 years. We get these types of communications from Taiwanese as well as other countries. In this case, the LaMondas who were the principals were convicted of crimes relating to the predecessor company which they operated in exactly the same manner as ABC and they are going to be sentenced to long prison terms next week. We in fact have a low opinion but we have a very strong basis on which that opinion is formed.
- 2. How did the escrow agents of ABC let ABC secretly move the money that should have been reserved for “future premium payments”?
- This is an excellent question. The Receiver has filed a law suit against the Trustee Erwin & Johnson for having allowed ABC to take investor money at will and use it for purposes other than premium escrow. The Trustee claims that under his contracts he had no obligation to fund the account and the fact that there were insufficient funds in the account to pay premiums was not his responsibility. The Receiver believes that the Trustee did have a duty to determine that there were sufficient funds in the account and further believes that the Trustee should either have insisted on the money being available or should have resigned. Because he continued to offer his name, status and offices as Trustee, many people relied on his position as a lawyer and made the investments they made. The Receiver and the Examiner believe that the escrow agent acted wrongly and as a result is being sued for recovery of damages to ABC investors. Whether there are claims against some prior trustees will have to be developed as we investigate more.
- 3. You have received this case for a long time and have charged close to USD $1,000,000. You should have already checked the records of deposits and withdrawals thoroughly to see where the “money” went? To the ABC principals? Did they intentionally defraud? If so, why didn’t they just let the investors lose all their investments and let the policies lapse?
- The Receiver has in fact checked the bank accounts of ABC and many others to build a record of where the money went. A very large sum went to the ABC principals. It is the opinion of the Receiver and the Examiner that the principals of ABC did intentionally defraud investors. You ask why they (assuming you mean the principals) didn't just let investors lose all their investment and let the policies lapse? I can't tell you that I know specifically what they were thinking but in a scheme such as this (we have seen many) the idea is to keep selling investments, pay only what you have to pay to keep the policies alive and take the rest. My best guess is that they kept doing what they were doing because they made a lot of personal money that they used to buy very expensive houses, cars and a luxurious lifestyle. They were stopped from allowing you to lose your entire investment by the intervention of the SEC and the Receiver. It is my opinion that only because the SEC intervened and had the Receiver appointed will you have any chance of getting some of your investment returned.
- 4. Why does Receiver insist that IFS is a fraudulent “shell company”? If so, how would the lawsuit against IFS recover money paid by ABC to IFS? If the belief is true but you end up recovering money from IFS, how does that make sense? Since IFS accepted the performance bond obligations from ABC, the lawsuit should go after the “contractual” obligations IFS should have, which would be the amounts insured for all policies. Unless Receiver can prove that this company does not exist at all, I personally believe that the Receiver insists on his own subjective belief that IFS is a “shell company” and that the lawsuit Receiver filed against IFS was merely to put on a show.
- There are many reasons to believe that IFS is a shell company and a fraud. It was formed on the island nation of Vanuatu and there is no record of its current existence there now. We believe it is the fraudulent creation of David Goldenberg and Mark Wollock.. If you go to the IFS website, you will note that it says that all contact and correspondence should be sent to the US address in Michigan, which we know to be the location occupied by David Goldenberg, the broker we sued and who took a large share of the ABC premiums money and did not forward it on for the payment of premiums. Most importantly, the Receiver has obtained and reviewed the bank statements that show that ABC's 3,200,000 in premiums paid to brokers in the US for IFS bonds went to the US brokers that sold the bonds and not to IFS. We also know that IFS has been sued on other occasions for failing to honor bonds. There is a website for IFS, but no response from our efforts to contact them.
The Receiver did file a law suit against IFS to get a judgment. We thought, and it has turned out to be the case, that getting to judgment was inexpensive to complete. It is not likely that it will result in any money returned to the Receivership, but in case assets are found in the US or some other jurisdiction, having a final judgment in place will be the tool the Receiver uses to attach those assets.
The law suit against IFS is for the unpaid bond obligations of 48,000,000. We cannot sue for bond obligations that are not presently due because IFS legally has no obligation to pay on a claim for a bond that is not yet due. I regret that you think this was for "show", but there are very solid and inexpensive reasons for having filed the suit.
- 5. I really want to ask the official SEC examining agency to answer all of my questions because during all these time, the Receiver and the Examiner had been handling this case biasedly. On January 29 at the meeting, when I heard the Receiver compared and essentially equated the ABC receivership case to cases where certain U.S. financial institutions would purchase life insurance policies for seniors and make payments of high premiums for them, I immediately raised my hand to respond that most of the ABC policies were policies held for many years before they were sold legally to the public as investment opportunities under the laws of Texas. I request the Receiver to please let the legal proceedings begin. I am still of the one opinion: the money we invested was hard-earned money, and ABC is not a corporation that is bankrupt or being liquidated. However, what we are seeing is that Receiver believes ABC and IFS are defrauding the consumers. Shouldn’t we prove ABC, IFS, and 3 trustee attorneys are all liable, recover the money we should recover? If trustee attorneys breached their duties, they should also have professional liability insurance coverage. If IFS does exist, please demand that they “perform” their obligation and pay the insured amounts.
- If you understood the Receiver to say in Taipei that "all" the ABC policies were recently purchased then we regret that lack of communication. You are correct that some of the policies held by ABC were policies that had been in force for a number of years. However, it is clear from our investigation thus far that some of the people who are listed as the insured were not even aware that an insurance policy had been taken out on their life. We are contacting these insureds to get updated medical information so that potential buyers can make offers and some insureds that we have contacted are unaware that the policy exists. Whether the policy was taken out recently or many years ago is not all that important to the Receiver, what is important is that we maintain the premiums so that the policies can be sold or mature.
You state that you have a very firm opinion that ABC is not in bankruptcy or being liquidated. This is not completely correct. It is in "receivership" which is a substitute for bankruptcy. The Receiver's primary job is to identify all assets, including claims, liquidate them, determine who has been a victim and in what amount and then to pay out the proceeds of the assets to the victims. ABC may in fact be liquidated in the near future if the policies are sold and the proceeds paid to the investors. The operations of ABC have been closed because they were taking money from investors under false representations and using the money for purposes other than as promised. A law suit has been filed against the most recent trustee and other trustees may be joined as more is learned. They are being sued to attempt to recover damages they caused to ABC's investors. I believe we are doing everything you are suggesting we do.
You state that the Receiver should "let the legal proceedings begin". I do not understand what you are asking and if the other answers in this response fail to address your question, please reply.
We regret that all this takes time and money but we are very experienced at this process and will work hard and efficiently to get the investors the most we can.
- 6. What is a receivership?
- Usually, a receivership is set up at the request of a petitioning creditor or regulatory agency, based upon proof that the company or person for whom a receiver is to be appointed cannot reasonably be expected to maintain their own assets, or is likely to remove them from the court’s immediate jurisdiction. If a court appoints a receiver, then the receiver has the authority to control the company and/or assets in question, and is responsible to do what the court thereafter directs. While under court supervision, a company and/or the assets in question are said to be in receivership.
- 7. What is a receiver? (Michael J. Quilling)
- A receiver is a person appointed by a court to take possession and control of a company or assets. A receiver “steps into the shoes” of the company or person for whom the receiver is appointed. A receiver acts under the supervision and at the pleasure of the appointing court. A receiver is usually granted very broad powers, including the authority to seize all of the property of the company or person and to take the necessary action to preserve and protect those assets in order that they will be handled as the court directs. Where a serious, mass securities fraud has taken place, the receiver is usually directed to collect what can be recovered from the perpetrators of the fraud and/or third parties who received invested funds, to determine who invested money with the involved entities and the relative shares of each investor in the overall loss, to manage and/or sell the assets so as to obtain the highest return to investors, and to effect a distribution of whatever can be recovered as the court may direct.
- 8. What is an Examiner? (Steven A. Harr)
- An examiner is appointed by the supervising court in cases where there are numerous investors and complex issues in order to keep investors informed of the key events in the proceeding, to field investor inquiries, to gather information and input from investors from time to time on key issues before the receiver and the court, to monitor and advise the receiver on his actions with the best interests of the investors in mind, and to act where appropriate in the furtherance of investor interests and court directives.
- 9. What happened to put ABC Viaticals into Receivership?
- It does not appear that ABC properly set aside sufficient premium reserves to cover premium obligations. According to the SEC, investor funds were simply pooled together, and spent without regard to what the premium reserve needs might have been at any given point in time. As a result, ABC began to rely upon new incoming funds in order to pay existing premium obligations. Additionally, the SEC alleges that ABC made various material misrepresentations in the course of soliciting policy investors. In the interest of protecting investors from any further illegal activity, the SEC brought an enforcement suit against ABC and sought the appointment of a receiver to act under court supervision.
- 10. Why was ABC allowed to continue operating like this for so long until the SEC became involved?
- Under U.S. law, private citizens have the right to form companies and to conduct business without direct government involvement. Even bad business ideas are allowed to be attempted, provided that any investors in such ventures are fully informed of the risks. The SEC regularly monitors whether adequate disclosures are being made to investors, although given the freedom with which commerce is conducted, it can take some time before enforcement agencies become aware of unregistered fraudulent offerings. In a case such as this where the investment is not due to pay off until a considerable period in the future, a fraud can run undetected for even longer.
- 11. Will I get my money back? When?
- There is no way at this point in time to project when a return of investment will occur or how much each investor will be paid. Investor money (money from policy purchasers) has been mostly spent on paying large broker commissions, buying policies, paying premiums, paying insiders, and other administrative costs. There is only about $4 million left. If the policy portfolio that currently exists is valuable, then it can eventually be either restructured or liquidated, and investors can receive back their share of the funds held by the Receiver. But, the current financial situation cannot be quickly unwound.
- 12. What are the options for paying the premiums on the policies?
- The policies have some cash value reserves, which will be used to the extent possible. Beyond that, the Receiver will have to either use the $4 million cash that remained as of the end of 2006, borrow money, sell some of the policies, use proceeds of any policies that mature, or raise new investment based upon accurate disclosures.
- 13. What is pooling?
- There are not sufficient funds available to pay the premiums that will come due on all of the policies before they mature. Therefore, in order to make sure that all premiums would be paid and no policies would lapse, ABC's assets were declared to be a single fund to be used for the benefit of all investors. This will necessarily entail using the benefits from any matured policies to fund the continuing costs instead of paying benefits to investors who may have invested in the matured policies. It also allows the Receiver to obtain financing, effect a partial sale, or otherwise seek to obtain additional funding as may be necessary. Pooling also provides the greatest fairness to all investors by preventing the result of some investors being paid in full and some not at all.
- 14. Can a group of investors just take their policy and pay the premiums and remove it from the Receivership?
- No. Because the policy premium funds were not separately maintained, the policies were commingled some time ago. Although ABC told investors that they were “policy purchasers” whose premium funds had been set aside, ABC in fact put the purchase money together, and then funded a premium account on monthly basis with available funds, but also paid many other expenses from the same funds. The result appears to be that there is a shortfall. The Court has recognized this fact, and ordered that all assets of ABC, including policies, be pooled together, so as to help obtain financing to pay premiums, and to allow maturities to be retained to do the same.
- 15. What is the current status of my policy?
- Because of the way that ABC was structured and managed, policy purchasers were not in fact policy owners, but were instead investors in a joint enterprise. Consistently, the Court in this matter has "pooled" all of the assets of ABC, including all of the policies. Each ABC investor will be allowed to make a claim against all of the collective assets of the receivership. In short, you do not need to be concerned about the status of any individual policy you may have invested in as that no longer makes any difference. The Receiver will, however, periodically report as to the financial condition of the receivership estate.
- 16. Will any of the policies lapse?
- There is no present intention of allowing any of the policies to lapse. There are multiple strategies which have already been approved by the Court to prevent this, including securing a line of credit from a financial institution and/or selling one or more of the policies to create funds to pay premiums, as well as pooling of maturities. The Receiver is reviewing, however, the entire portfolio to ensure that premiums should continue to be paid on all policies.
- 17. Will investors who invested 5 years ago be treated differently than those that invested during the last year?
- Probably not. Typically, the administrative cost outweighs the benefit of adjusting investor claims according to the time of the investment.
- 18. Do all of the insurance policies actually exist?
- 19. Are the bonds real?
- t is the firm belief, as stated above, that IFS is a total fraud and sham and that no payment will be obtained from IFS on the policies it bonded. No Albatross policies have yet reached the point where a claim would be appropriate, and the Receiver will be evaluating Albatross further.
- 20. Where is my money now; is it safe; am I losing principal?
- Investor money was mostly spent. Funds were used to pay broker commissions, purchase policies, pay premiums, pay administrative expenses, and transferred to insiders. In exchange, ABC now holds a life settlement portfolio, which may or may not be worth what was paid to obtain it. The Receiver hopes to be able to convert that portfolio back to cash, and is currently evaluating the best way to do so, whether that is by holding the policies until maturity, selling policies, or some combination. Each investor owns a right to a distribution of a percentage of whatever funds are ultimately obtained.
- 21. Do I need to hire an attorney?
- Neither the Receiver nor the Examiner is to be considered a substitute for an individual’s own counsel. You will need to make this decision after consulting with an attorney.
- 22. How and when do I submit a claim for my investment?
- The Receiver has mailed out Official Claim Forms to all investors. You are asked to complete the claim form and return it, along with copies of all documentation evidencing your investment and monies paid for same, to the Receiver. Your claim will then be assigned a claim number and reviewed by the Receiver's office. If you do not have a claim form, please contact email@example.com.
- 23. How are IRAs being treated?
- IRAs are being treated the same as any other investment. If you wish to maintain the qualified nature of your funds, then you should contact your IRA manager or tax accountant for advice on what to do if and when funds are paid to you.
- 24. What's going to happen to the principals of the company?
- Keith and Jess La Monda have been convicted on criminal charges related to their operation of Accelerated Benefits Corporation, their prior company. They will be sentenced in July 2007. The Receiver is not aware of any other ongoing criminal investigations, but is presently investigating potential civil claims against any party who received investor funds without providing equivalent value for them. Also the Receiver has made demand on the LaMondas for the return of assets that they purchased with investor funds, including numerous houses, condos and autos. As of early July 2007, the Receiver believes he has a settlement with the La Mondas that will call for substantially all of these assets to be returned to the Receiver for liquidation.
- 25. Shouldn't the brokers/agents be held liable, too?
- Possibly. There are civil and criminal penalties that may apply under some circumstances. Brokers may be obligated to return commissions.
- 26. Can I personally file a separate lawsuit against any of these parties?
- Under U.S. law, an individual investor has standing to bring a direct claim against any of these parties. You should consult with an attorney. The Receiver would also appreciate knowing whether any separate actions are being considered.
- 27. Can the Receiver appoint a person in Taiwan so that the Taiwanese can have direct dialogue without having to wait for reply to email from the US?
- This is not a cost that the Receiver or Examiner believe is reasonable. The person would have to be fully informed of all on going developments to be effective in responding to questions posed. The Examiner is improving his website, will update it more frequently and will attempt to respond to investor email more promptly.
- 28. We understand that the Receiver has borrowed funds from a US bank to pay premiums and costs. What is the interest rate and will they consider borrowing from an Asian bank?
- The Receiver has a $5,000,000 line of credit from a US bank and is about to increase that to $9,000,000. The interest rate is 1.5% over prime. The line is secured by the portfolio of policies. There was much time and negotiation involved in securing the line of credit and incurring those same costs of the Receiver's time to educate a new bank on the history of ABC, the portfolio and the like is not seen as a wise use of the estate's money.
- 29. Is it possible to just sell the policies invested in by the Taiwanese investors and to return the proceeds of that sale to the Taiwanese investors?
- No. The law of the US that controls this case supports the Court's decision to pool all assets in to one estate for the benefit of all.