SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16546 / May 9, 2000
SEC SUES PRINCIPALS OF FORT LAUDERDALE - BASED VIATICAL INVESTMENT SCHEME FOR DEFRAUDING INVESTORS OF BETWEEN $80 MILLION TO $130 MILLION
SECURITIES AND EXCHANGE COMMISSION v. FREDERICK C. BRANDAU, RAPHAEL "RAY" LEVY AND JEFFREY PAINE, (United States District Court, SD Fla., Civil Action No.00-06618 CIV-HIGHSMITH)
The Securities and Exchange Commission ("SEC") announced that today it filed a civil injunctive action against Frederick C. Brandau ("Brandau") of Ft. Lauderdale, Florida, principal of the now-defunct Financial Federated Title & Trust, Inc. ("Financial Federated"), Raphael "Ray" Levy ("Levy") of Lake Worth, Florida, principal of the now-defunct American Benefits Services, Inc. ("ABS") and Jeffrey Paine ("Paine"), a West Palm Beach, Florida attorney who acted as escrow agent to ABS. The SEC is seeking permanent injunctions, civil penalties and disgorgement from the defendants who it alleges engaged in a massive Ponzi scheme from 1996 through July 1999, defrauding over 5000 investors nationwide of between $80 million to $130 million. The complaint further alleges that Levy, who was not registered as a broker-dealer, and Brandau and Paine, engaged in an unregistered distribution of securities.
Specifically, the complaint alleges that Levy, through ABS and a network of independent sales agents, offered and sold viatical investments on behalf of Brandau and Financial Federated, who purported to purchase life insurance policies from terminally-ill viators at a discount. As offered by Levy and ABS, the viatical investments were touted to be, among other things, fully secured, non-speculative financial investments which paid a 42% return on a 36-month investment. However, the complaint alleges, unbeknownst to the investors, that Brandau and Financial Federated only purchased approximately $6.5 million worth of insurance policies and misappropriated the remaining funds.
The staff seeks to obtain permanent injunctions, civil penalties an accounting and disgorgement against Brandau, Levy and Paine based on their violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5, thereunder, and Levy's violations of Section 15(a) of the Exchange Act.