Florida CFO Releases Top 10 Fraud List; More Than $820 Million in Losses

Florida’s Chief Financial Officer Tom Gallagher recently released the Department of Financial Services’ annual Top 10 Fraud List. The list summarizes 10 of the costliest or boldest securities, financial and insurance fraud scams that resulted in arrests or convictions during the fiscal year that began July 1, 2003, and ends June 30, 2004. The 10 cases, listed in no particular order, add up to more than $820 million in financial losses.

2003-2004 DEPARTMENT OF FINANCIAL SERVICES’ TOP 10 FRAUD LIST

100 Percent Chance of Jail- Anthony Blissett, the former president and CEO of A.B. Financing & Investments Inc. (ABFI) was sentenced in November to serve 60 months in federal prison and pay $27 million in restitution after pleading guilty in federal court to conspiracy to commit securities fraud. Blissett reportedly represented to investors, mainly middle class African Americans, that investing in ABFI involved “no risk” and that their funds would be “guaranteed” and “insured.” Blissett guaranteed returns of 30 percent interest in what he called “loan portfolio” programs. Investigators determined that Blissett was operating a classic Ponzi scheme. He said his company had $36 million in assets when, in fact, ABFI had a negative net worth of $27 million. ABFI remains under a court-appointed receiver.

The Benefit Wasn’t Mutual- Federal and state regulators in May suspended the license of the nation’s largest viatical settlement company, Ft. Lauderdale-based Mutual Benefits Corporation, for violations of Florida and federal laws involving securities violations, fraud and misrepresentation. The company also was charged with 15 criminal counts of investor fraud following a three-year investigation. Mutual Benefits raised more than $600 million through the sale of discounted life insurance policies to some 29,000 investors around the world. An independent certified public accounting firm reportedly found that Mutual Benefits’ premium escrow account was dangerously under-funded and that Mutual Benefits had transferred a total of $7.6 million between accounts to cover premiums.

Wreck This Way- State insurance fraud investigators seized hundreds of records and arrested three owners of a Tampa medical clinic after an investigation revealed the owners hired “runners” to solicit auto accident victims and then billed insurance companies as much as $100,000 for services that were not provided. Investigators said they suspect that runners from the clinic worked dozens of crash scenes, offering some victims as much as $100 on the spot to seek “treatment” at Medical Rehabilitation Center. After accident victims came through the doors, investigators said, insurance companies were reportedly billed for services such as massage, electrical stimulation and hot packs that were never rendered. One of the runners was arrested after he returned from an extended hiatus taken shortly after the clinic was raided.

A Slip of the Paper- Five individuals were arrested in March on charges that they systematically defrauded as many as 1,000 senior citizens throughout South Florida in an organized scheme that netted more than $2 million in fraudulent insurance sales commissions. Investigators said licensed insurance agents were recruited to gain the trust of victims between the ages of 70 and 94. Promising to save them money on their health insurance, the agents instead reportedly “slid” them life insurance applications. Three agents already have lost their licenses. Within days of posting bond, one of the suspected organizers was rearrested on charges that he had resumed illegal activities.

Landing a Bad Deal- Myles W. Farrington, owner and operator of Ft. Lauderdale-based Landmark Investment Trust, was sentenced in February to 54 months in federal prison and was ordered to pay more than $7.5 million in restitution after he pleaded guilty last summer to mail fraud and engaging in illegal monetary transactions. Farrington reportedly offered more than 100 South Florida investors a 20 percent return on investments, promising the money would be placed in secure mutual funds. Farrington failed to deliver the promised returns.

Broken Promissories- In January, Philip Mehl of West Palm Beach pleaded no contest to 80 felony counts involving the unlawful sale of securities, mostly to senior citizens. Mehl, licensed at the time as an insurance agent, reportedly earned millions of dollars in commissions selling high-risk investments such as promissory notes and investment programs. Sentencing was pending.

Rolling the Dough- Eduardo Godoy, former vice president of Advantage Bank in North Palm Beach, is facing sentencing in July after pleading guilty to loan fraud, money laundering and mail fraud. Godoy collected personal bank loans of about $1 million by pledging fraudulent investment statements. The pledged investments did not exist. Godoy reportedly laundered the loan money by purchasing stock in his parents’ names.

Painting the Wrong Picture- The owner of a North Palm Beach painting company was arrested in April on a grand theft charge after he allegedly lied about his payroll to avoid paying workers’ compensation premiums. Investigators said that the owner of All Brothers’ Painting Inc. intentionally failed to disclose the payment of more than $537,000 to uninsured subcontractors. As a result, he reportedly avoided paying nearly $100,000 in workers’ comp premiums. Investigators said he was even present at a policy year-end audit and failed to reveal the payments.

Justice for Justus- The former owner of the now-defunct Justus Viatical Group LLC will serve three years in state prison after pleading guilty to 17 counts of grand theft stemming from a scheme to defraud insurance companies out of $3 million by lying on insurance applications involved in viatical settlement transactions. Scott Stephan, 41, formerly of Boca Raton, was sentenced last summer in Broward County Circuit Court. A 1999 statewide grand jury indictment alleged that Stephan and a Justus employee, Stephen J. Bendfelt, helped terminally ill individuals file phony applications for life insurance policies that were then sold to investors. Investors lost money when many of the policies Justus had secured were cancelled or rescinded by insurance companies after the fraud was uncovered.

All in the Family- Four officers of the former Miami-based Aries Insurance Company were charged in May with diverting more than $60 million from the company. Aries wrote personal and commercial auto and property coverage, as well as workers’ comp coverage, and had about 70,000 policyholders when it was taken into receivership in 2002. (See Page 11 for more information).