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Statewide Grand Jury Report on Viatical Fraud Released; Additional Indictments Issued

FLORIDA ATTORNEY GENERAL
NEWS RELEASE:
February 4, 2000

Fraud and corruption are rampant in the viatical industry and life insurance companies have been slow to respond to the problem, according to a report issued today by the Statewide Grand Jury.

Statewide Prosecutor Melanie Ann Hines announced release of the first report of the Fifteenth Statewide Grand Jury, which was impaneled last August to review a variety of financial crimes, including insurance fraud.

Viatical settlement providers purchase rights to life insurance policies from terminally ill individuals at less than face value then resell those policies to investors for a profit. The Grand Jury found that this was a billion dollar industry last year.

In its report, the Grand Jury found that a large number of terminally ill individuals were applying for and receiving life insurance policies by not reporting their illnesses, a practice known as "cleansheeting." These fraudulently obtained policies were eventually sold to investors with the knowledge and complicity of -- and sometimes even encouragement from -- some life insurance agents, viatical brokers and viatical settlement providers.

"The Grand Jury concluded that if the fraud continues unabated, the entire industry may become jeopardized," Hines said.

The Grand Jury also issued two more indictments charging five individuals and one corporation in the viatical industry with multiple counts of grand theft and dealing in stolen property. The fraudulently obtained policies had a face value of over $9 million. The indictments follow one issued in October charging two South Florida viatical settlement providers with grand theft and filing false claims.

The Grand Jury made several recommendations to the Legislature, chief among them the strengthening of last year's legislation by increasing the penalty for viatical fraud from a misdemeanor to different levels of felonies, depending on the amount defrauded. The report also recommended that the Legislature require viatical settlement providers to certify they have reviewed medical records to detect fraud. It also encouraged the Legislature to increase the penalty for viatical settlement providers that refuse to maintain proper records.

The Grand Jury report contained suggestions for the insurance industry as well, including recommendations that the industry as a whole do a better job of identifying and combating fraud. It also suggested insurers consider increasing the practice of providing advanced death benefits to their insureds to provide an alternative to viatical settlement providers.

The report was released by Presiding Judge Belvin Perry, Jr. of the Orange County Circuit Court. The panel will continue to meet monthly in Orlando through July and possibly longer, if the Grand Jury is extended.

A copy of the report will be available on http://legal.firn.edu/swp

For further information on the Grand Jury report, please contact:

Melanie Ann Hines
Statewide Prosecutor
(850) 414-3700

Oscar Gelpi
Special Counsel
South Florida Bureau
(954) 712-4950