Litigation Release No. 17601 / July 8, 2002
Securities and Exchange Commission v. Frederick 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 ("Commission") announced today that the Honorable Shelby Highsmith, United States District Court Judge for the Southern District of Florida, entered a Judgment of Permanent Injunction and Other Relief ("Judgment"), by consent, against Jeffrey Paine ("Paine"), an attorney from West Palm Beach, Florida. The Judgment enjoins Paine from violating 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 and Rule 10b-5, thereunder. The Commission's Complaint ("Complaint") alleged that from 1996 through July 1999, Paine and others operated a massive Ponzi scheme through American Benefits Services, Inc. ("ABS") and Financial Federated Title & Trust, Inc. ("Federated"), two now-defunct Florida corporations. Paine acted as escrow agent for ABS and Federated. The scheme involved the unregistered, fraudulent offer and sale of investment contracts in the form of fractional interests in the death benefits of life insurance policies, commonly known as viatical settlements.
The Complaint alleged that the viatical investment scheme defrauded over 5000 investors nationwide of between $80 million to $130 million. The Complaint specifically alleged that ABS employed a network of independent sales agents who sold the viatical investments on behalf of Federated, which purported to purchase the life insurance policies from terminally-ill viators at a discount. As offered, the viatical investments were touted as fully secured, non-speculative financial investments which paid a 42% return on a 36-month investment. Unbeknownst to the investors, however, Federated only purchased a small number of the policies and misappropriated the remaining investment funds.