Death Be Not Profitable

Investors are finding that terminally ill patients don't make the best investments

"This is four years ago and I cannot get complete medical information on them. I don't even know if these people actually exist."

When Elliott invested with The Chamber Group, the motto published on the Chamber Group's promotional material was "Never Risk Principal!" and that its viatical investments were "guaranteed." Elliott says he wasn't advised of any risks.

But viatical investments are very high risk, since no one can truly predict how long it will take an individual to die, especially with the increasingly effective treatments available, Murphy says.

While the Chamber Group materials promoted a 12 percent return on investments through viaticals, the Commission's Security Division said as early as 2001 that only 15 percent of this brand of viatical investment ever matured in the predicted time frame.

"[Viaticals] originally came out as a humanitarian payment to allow AIDS patients to live out their days in comfort and to afford medication," Murphy says. "The reality is AIDS patients have outlived a lot of their insurance policies."

Carrington Estate Planning Service, the brokerage that supplied the Chamber Group's viatical contracts, stopped paying the premiums not long after Elliott purchased the viaticals. The Corporation Commission ordered Carrington to pay the premiums, but he disregarded the order.

In July, Scottsdale police arrested Carrington on 14 counts of criminal theft and two counts of fraud. He was released on bail and pleaded not guilty.

The arrest was the culmination of a state investigation by the Attorney General's Office and the May 2002 finding by the Corporation Commission that charged Carrington with defrauding more than 600 investors who had purchased $29 million in viatical contracts.

The fraud charges stemmed from his failure to disclose the risk involved, misrepresenting the success of the viaticals to investors and failing to continue making premium payments. He also was charged with "clean-sheeting" some of the policies -- that is, offering AIDS patients money to apply for life insurance without disclosing they had AIDS.

For Elliott and his fellow investors, having to pick up the premium payments hurts the most. Under the Commission ruling, Carrington was to pay $500,000 over a three-year period to cover the insurance premiums. While he did pay an initial $50,000 fine, he made no subsequent payments.

This has Elliott and other investors paying hundreds of dollars each for the premiums to keep from losing everything. Each payment (as well as each legal fee) essentially means a lower return on their money. If other investors bail out, Elliott and other diehards will have to pay even more if they ever hope to recover their initial investments.

"The first premium was around $1,600, then there was one $500 and another one for about $800," Elliott said. "I don't know why these premiums vary, but they do, and if I don't pay them I get kicked out of the policy."

Despite the criminal charges, the Corporation Commission is now debating whether it may be best to work with prosecutors on a plea deal rather than a prison sentence.

"On the one hand, if Carrington is not in jail and he's earning an income, the courts can get part of his income to help investors, but he can also be engaging in activities that are problematic for us," Murphy says.

"Some of the investors say if he's not earning an income they'll never get anything out of their investments, but a lot of our investors would like to see him do jail time as the ultimate penalty for the heartache he's caused."

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