American Retired Seniors

Feb. 27, 2009 – A receiver appointed by a Texas judge has seized the assets of National Life Settlements of Houston. The Texas State Securities Board announced the seizure, charging that the company sold more than $20 million in fraudulent life insurance settlement contracts to mostly senior citizens that included retired state employees, retired teachers and other Texas investors.State District Court Judge Suzanne Covington of Travis County appointed the receiver at the request of Texas Securities Commissioner Denise Voigt Crawford and Texas Attorney General Greg Abbott, according to a report in the National Underwriter, an online news source for life and health insurance agents.

The court-appointed receiver has taken control of about $19 million in bank accounts under the control of NLS and company officials, according to officials in Crawford’s office, the National Underwriter reports.

Texas Attorney General Abbott announced on February 13 that he had charged the owners of two investment plans with orchestrating a fraudulent scheme that targeted retirees and teachers. According to the state’s enforcement action, Howard G. Judah Jr. of Houston and Gregory F. Jablonski of Castle Rock, Colo., falsely guaranteed lucrative investment returns, misrepresented their “life settlement” policy investment offerings, failed to disclose material information to investors, and committed multiple violations of the Texas Securities Act

“At a time of extraordinary market volatility, the defendants attempted to take advantage of anxious investors by falsely promising safe investments and guaranteed returns,” Abbott said.

“Today’s enforcement action charges the defendants with failing to make required disclosures, selling unregistered securities and other violations of the Texas Securities Act. To protect the retirees and teachers who entrusted their savings to this investment scheme, the Office of Attorney General obtained a receivership order, resulting in the seizure and assessment of the defendants’ bank accounts.”

Securities Commissioner Crawford, added: “So-called life settlements – interests in the death benefits of older people – are highly speculative investments, and investors should not be misled by claims that they offer safe, guaranteed returns such as a certificate of deposit.”

According to State Securities Board investigators, Judah, a three-time felon convicted of financial crimes, and Jabonski each formed a limited liability company in their respective states, both known as National Life Settlements, LLC.

Together they marketed and sold three principal investment schemes that are identified in the state’s enforcement action as secured notes, the Immediate Income Investment plan and membership interests in special purpose limited liability companies. Neither the defendants’ securities – nor their salespeople – were registered with State Securities Board, as required by law.

The defendants’ secured notes program purported to offer notes – written promises to pay sums of money – secured by life settlement policies. In life settlements, a life insurance policy owner sells the policy to a third party for more than the cash surrender value offered by the insurance company. The purchaser then must make premium payments and receives the payout upon the insured’s death.

According to the state’s enforcement action, investors were told that their investments were guaranteed, had little or no risk, and would deliver up to a 10 percent annual return on the investment. Like the secured notes program, the Immediate Income Investment plan purported to have little or no risk. Investors were told their funds would yield a fixed rate of return and feature bi-weekly income payments.

The defendants’ marketing materials claimed that National Life was “among the most secure, stable, and highest paying investment programs available today.” National Life also claimed that certain products guaranteed a 10 percent rate of return, and promised that its investment opportunities were “not subject to market volatility.”

According to the state’s enforcement action, both statements constitute a “fraudulent practice” under the Texas Securities Act.

Between November 2006 and December 2008, the scheme raised approximately $20 million from 240 individual investors. That amount includes more than $2.5 million from employees who withdrew assets from their pension funds to invest in the defendants’ investment scheme.

Of the nearly $20 million that the defendants raised from investors, approximately $3.16 million was used to compensate National Life’s unregistered securities salespeople. It is illegal to pay commissions to securities salespeople who have not registered with the State Securities Board. Nearly $900,000 has been transferred to Judah and his family members, including $230,000 for Judah’s salary. More than $650,000 was paid to Jablonski and his company, JCJ and Associates.

Approximately $9.1 million – or about 45 percent of the investors’ money – has been transferred into an account owned by NATT, LLC, also controlled by Judah and Jablonski.

The defendants’ transfers into the NATT account, which the investigation found were not disclosed to investors, began in June 2007.

Despite the guaranteed annual investment returns and bi-weekly payments promised to investors, National Life has only paid investors approximately $3 million over the two-year period.

Court documents filed by the Office of the Attorney General indicate that the defendants’ Internet-based advertisements and false statements also constituted Texas Securities Act violations.

For example, the defendants wanted investors to think their investments were subject to regulatory oversight. Marketing materials produced by the defendants falsely stated that their products were regulated by the Texas Department of Insurance. And they furthered their attempts to project security and legitimacy by falsely claiming that National Life received over $60 billion in “commission checks” from the Federal Reserve in 2008.

According to investigators, the defendants were poised to launch a third scheme that would sell membership interests in special purpose limited liability companies. Investors were told that their investment would yield a tax free return on investment as high as 11 percent annually.

Filed under: Fraud Alerts and Identity Theft