SEC: Life settlement scheme padded pockets of alleged scam artist
The U.S. Securities and Exchange Commission wants to put a stop to an alleged $4.5 million investment scheme that involves brokering so-called life settlements.
The SEC alleges Daniel C.S. Powell and his Los Angeles company, Christian Stanley Inc., have spent the past seven years “creating the illusion” that this was a legitimate business involved in the life settlement industry. However, the SEC claims, Christian Stanley actually never purchased life insurance policies or generated any revenue as a broker of life settlements.
The SEC has obtained an emergency court order to halt Powell’s alleged scheme.
|Federal authorities claim Daniel C.S. Powell spent almost $90,000 on stays at luxury hotels as part of a life settlement scheme.|
Rosalind Tyson, director of the SEC’s Los Angeles office, says in a news release: “Most of the money raised from investors has been used to finance Powell’s extravagant lifestyle and for other purposes that have not been disclosed to investors.”
Among other things, Powell allegedly did this with investors’ money:
• Paid more than $212,000 for cars, including a Porsche, a Ferrari and a BMW.
• Spent almost $90,000 for stays at luxury hotels.
• Spent more than $49,000 at nightclubs.
• Put $21,000 toward his school loans.
• Paid more than $17,000 for restaurant tabs.
• Spent $8,700 on jewelry.
• Spent more than $5,000 on cowboy boots.
• Took nearly $5,000 to register for a dating service.
• Spent more than $4,800 for limousines.
• Spent more than $1,300 on designer sunglasses.
According to the SEC’s complaint, Powell raised more than $4.5 million from at least 50 investors nationwide in a fraudulent, unregistered offering of debentures — unsecured-debt notes — that promised returns ranging from 5 percent to 15.5 percent annually for five-year terms. Powell claimed the notes were backed by assets such a mine in Kentucky that he said held coal deposits valued at $11.8 billion and a gold mine in Nevada, the complaint says.
Yet none of the investors’ money went toward life settlements or mining operations, the SEC alleges.
A life settlement involves selling an existing life insurance policy to a third party — a person or an entity other than the company that issued the policy — for more than the policy’s “cash surrender” value, but less than the death benefit. The buyer then assumes payment of the premiums.
The Financial Industry Regulatory Authority (FINRA), the largest independent regulator of securities firms doing business in the United States, says life settlements carry considerable risk.
“Life settlements can be a valuable source of liquidity for people who would otherwise surrender their policies or allow them to lapse — or for people whose life insurance needs have changed. But they are not for everyone,” FINRA says. “Life settlements can have high transaction costs and unintended consequences. And even if you decide a life settlement is generally right for you, it can be hard to tell whether you are getting a fair price.”
The SEC recommends checking whether professionals involved in a life settlement are registered or licensed before signing on the dotted line. For more information, visit the websites of the National Association of Insurance Commissioners or FINRA.