U.S. Charges Four With Fraud in Life Insurance Investment Case

The U.S. attorney’s office has charged three men and a woman with fraud in connection with an alleged $50-million scheme involving investments secured by illegitimate life insurance policies for the terminally ill.

Promises of 25% returns by Palm Springs-based Personal Choice Opportunities attracted more than 1,000 people who invested as much as $300,000 each in what they believed were “viatical settlements,” which allow the terminally ill to sell their insurance policies at less than face value so they can use the money while they are alive, officials said.

“We allege it was a Ponzi scheme--there were never any legitimate insurance policies,” said William McDonald, assistant commissioner of the state Department of Corporations.

Instead, officials charge that the company used money from new investors to pay previous investors.

The Department of Corporations is attempting to freeze as much as $40 million worth of assets held by the four and their various companies in California and Nevada.

The U.S. attorney’s office on April 7 charged David W. Laing, 52, owner of Personal Choice Opportunities of Palm Springs; Valerie E. Jenkins, 43, owner of Escrow Plus in Burbank; Michael D. Smith, 33, a broker for PCO in Aruro, Colo.; and Dennis V. Rinner, 40, a broker for PCO in Okemos, Mich., with conspiracy to commit mail and wire fraud.

An attorney for Jenkins said her client did not commit any wrongdoing.

“She didn’t know there was anything wrong going on--she didn’t know about the nonexistence of policies,” said attorney Janet Levine.

Neither Laing nor his attorney, Robert Shapiro, could be reached for comment.

All four are free on bail, officials said. Each faces a maximum sentence of five years in prison and a $250,000 fine.

According to the complaint, Personal Choice Opportunities raised funds from investors for a “loan program” administered by Escrow Plus since June 1996.

But instead of buying legitimate insurance policies through the loan program, officials said, Escrow Plus disbursed much of the investor funds to Laing. Most of the money is still in various accounts Laing controls, McDonald said.

“This is a very unusual case in that most of the money hasn’t disappeared yet,” McDonald said.

At a hearing May 13, the state is expected to ask Los Angeles Superior Court Judge Robert H. O’Brien to appoint a receiver for most of the defendants’ assets, McDonald said.

However, the receiver would take over only part of the assets of Escrow Plus; its mortgage broker operations in Burbank are not under scrutiny, he said.

Escrow Plus is still open for business, as is Personal Choice Opportunities.

Investors in Personal Choice came from throughout the nation and Canada, McDonald said.

One Southern California investor, who did not want to be named, said he heard about the investments from an insurance broker. He sent a $35,000 check in early March to a Colorado company run by Smith called M.D. Smith & Co. The check cleared a month later, but the investor never received any insurance documents. Calls to that company went unreturned, he said.

Personal Choice Opportunities is one of more than 50 companies nationwide that specialize in viatical settlements, which have grown into a $300- million industry.

Such settlements allow terminally ill patients access to financial resources, often at a time when their medical bills are staggering and they are out of work.

While the potential returns to investors can be high, the risk is also high. Because investors only get a return when the insured dies, an extended life can mean fewer or no returns on their investments.

The viatical settlement market is virtually unregulated and plagued with fraud, including scams in which firms sell investments in “terminally ill’ insurance policies that are really the policies of healthy people. Other policies are complete forgeries.

“What’s so sad about this case is that it will affect my member companies--legitimate, licensed firms trying to comply with the law,” said William E. Kelley, executive director of Viatical Assn. of America, a Washington trade group.