Mutual Benefits Corp. was raided by federal marshals at its downtown Fort Lauderdale headquarters and a subsidiary. Lawyers from the Securities and Exchange Commission seized the company's files.
The Office of Statewide Prosecution charged Mutual Benefits with racketeering and 15 counts of investor fraud. The company's escrow account for about 6,000 policies will have a deficit of about $3.4 million by September, the insurance office said.
In a civil complaint, the SEC said Mutual Benefits committed fraud in the sale of so-called viatical settlements, in which investors buy life insurance policies at a discount from the terminally ill or elderly in need of cash. The investors collect the benefit when the insured person dies.
Investors could pick policies that were projected by a doctor to pay off in one, two or three years. According the SEC complaint, Mutual Benefit guaranteed fixed returns of 12 percent, 28 percent and 42 percent, respectively.
But as of Sept. 30, the insured people had lived longer than projected, which dilutes the value of the investment in about 90 percent of the active policies.
The SEC said 74 percent of the policies didn't have enough premium money in escrow to keep the policies from lapsing. Instead, Mutual Benefits used money from new investors to make payments on the old accounts. In that way, the company resembled a Ponzi scheme, which uses new investors to pay off previous investors, according to the SEC complaint.