Some 1,000 investors this month have been sent an initial payment of $5.44 million or 7 cents on the dollar, stemming from an investigation by Texas securities regulators into a life settlement fraud scheme.
The state alleged in seeking control of the companies that principals as well as “licensees” or agents, had sold interests in 53 life insurance policies with an aggregate face value of approximately $131,000,000 to investors.
“Before being forced to close, Retirement Value and Hill Country raked in about $80 million from investors in less than a year,” regulators alleged in court filings.
Regulators said investors were told they could expect to earn 16.5 percent annually.
Eduardo Espinosa, the receiver for the two companies, said “licensees,” or agents, were promised commissions of 16 to 18 percent, and Retirement Value claimed an average of 12 percent of the capital raised as its profits.
Espinosa, a shareholder at Cox Smith and Matthews, a law firm in Dallas, told the National Underwriter and has presented documents to the court, state securities regulators and the victims, that he hopes to recover almost $80 million invested in the two related companies over the next decade.
The projected total payments are in contrast to another life settlement scheme involving A&O Resource Management, based in Houston.
That case, involving an estimated $100 million in investments by what federal prosecutors said were more than 800 people in 37 states and Canada, “hundreds of them elderly retirees,” resulted in final distributions of eight cents on the dollar, according to a settlement approved in federal bankruptcy court in Chicago.
Six people were sentenced to prison in federal court in Richmond in 2011 in connection with the case.
The men sold “bonded life settlements” guaranteeing returns of 10 percent to 20 percent, according to the indictment. A statement by the Department of Justice alleges that they misrepresented their qualifications and past successes while spending investor money on personal expenses including multimillion-dollar homes, luxury cars and a 15-carat diamond ring.
“The victims of A&O’s scam were looking for a conservative investment, and they were manipulated into believing A&O was a safe, secure, no-risk investment,” U.S. Attorney Neil MacBride in Alexandria, Virginia, said in the statement. “It was all a big, fat lie; A&O was a sham, a financial house of cards waiting to collapse.”
Principals of Retirement Value LLC and Hill Country Funding were accused by the Texas Securities Board of fraud and deceptive practices in the sale of life settlement investments in 2010.
Espinosa said that his investigation “discovered evidence of significant fraud by Retirement Value and its licensees [agents] because they misrepresented the nature and safety of the product, the risks and prospective returns; and had omitted or misstated key facts about the company, its principals and material providers.”
In short, he added, “they denied the investors the information necessary to make an informed decision regarding whether to invest in this financial instrument.”
Other litigation and arbitration against Wells Fargo Advisors, LLC, Wells Fargo Investments, LLC, Wells Fargo Bank, National Association and Whitney Giles, a relationship banker with Wells Fargo, have been filed by the receiver as well as licensees or agents that have been sued by the receiver to recover additional funds.
The actions against Wells Fargo allege that Retirement Value, “with the material assistance of Wells Fargo, sold unregistered securities to the investors.”
Lawyers for Wells Fargo at Fulbright and Jaworski in San Antonio and Austin were not available for comment.