Death Be Not Profitable

In early 2000, Don Elliott gambled his retirement savings on the life expectancy of five AIDS patients.

The Chino Valley retiree invested $112,000 in viaticals, a type of an investment that allows the terminally ill to cash in their life insurance policies while they're still alive and spend the money. Essentially, an investor pays the policyholder a one-time chunk of the insurance payoff; in exchange the investor receives the right to collect on the individual's death benefits.

Viaticals took off with the rise of AIDS in the '80s and '90s as a sort of humanitarian investment to help patients cover end-of-life expenses and buy medication to live out their remaining days in comfort. In Elliott's case, the company that brokered the deal told him that his patients had less than a year to live.

Nearly four years later, he has yet to collect on any of his viatical contracts. None of his "investments" have died.

He's all but lost the bet -- when they do die, he can still collect, but Don Elliott is 66 and has his own life expectancy to think about it.

Moreover, Elliott says -- and the Arizona Corporation Commission confirms -- the investment company welshed on its promise to keep up the insurance premiums, so now Elliott has to pay them himself. Each year the patients continue to live reduces the amount he'll eventually collect.

Now he's gambling again, this time through a lawsuit against the firms that sold him the investments. Elliott says either his latest court filings will force the unregistered "investment advisers" to return his money or he'll cut his losses.

In January, Elliott won a $212,000 judgment against The Chamber Group LLC (now called Senior Life Asset Management), an unregistered investment firm run by Joseph Hiland and his two sons, Tyson and Travis, out of offices in Mesa and Prescott.

But collecting the judgment is proving difficult for Elliott. The Hilands are skirting orders from both the Yavapai County Superior Court and the Corporation Commission to pay back more than $16 million to their clients, including dozens of Arizona residents who had invested in about 150 viatical contracts. The contracts sold by the Hilands originated with Carrington Estate Planning Services, a Phoenix company run by Richard Carrington that specialized in viaticals.

In early 2001, the Corporation Commission ordered The Chamber Group to refund its clients' principal investments after the Commission found that "The Chamber Group and the Hilands committed securities fraud and securities registration violations in selling four different investment products: brokered certificates of deposit, viaticals, a tax lien investment program and a money voucher investment program," according to a Commission press release.

Elliott and the Corporation Commission contend the Hilands have used the appeals process and various asset transfers to avoid paying back the investors as ordered.

"Not only are they frustrating collection efforts through their appeals, but they're also using other means like mortgaging their houses to the nth degree, making it hard to find the money," Corporation Commission spokesperson Heather Murphy says.

After winning his lawsuit, Don Elliott enlisted the Yavapai County Sheriff's Office to help him. A writ of restitution was issued on January 14 and two weeks later collectors from the civil division of the sheriff's office went out to the firm's Prescott office, hoping to seize and then sell furniture, computers and other office assets.

They came back empty-handed. The day before, the Hilands had made their assets untouchable by putting everything up as collateral for a $50,000 loan from a company in Oregon called Engage Development LLC.

Elliott's latest legal filing, which is leveled at the Hilands personally, charges that these transfers also were fraudulent. Corporation Commission and Maricopa County Recorders Office documents show that Engage Development is based locally and that it uses the same Mesa address and post office box as Senior Life Management. The lawsuit alleges that the Hilands have simply shifted their assets around and in fact operate both companies.

Joseph Hiland declined to answer questions about his company and the lawsuit. "Everything we did was perfectly legal. If there was anything illegal, I think they'd file criminal charges," he says. "We did nothing fraudulent."

Hiland, who works out of the Mesa office, says his company is still appealing the ruling.

Between 1999 and 2000, Elliott invested about $212,000 with The Chamber Group after responding to a radio spot advertising certificates of deposit that would mature in six months and produce a 9.5 percent return. He plunked about $100,000 into the CDs; the rest went into viatical investments.

Like many elderly investors who'd come to The Chamber Group looking for short-term investments, Elliott came back six months later and tried to cash in his CDs only to learn that he'd purchased 20-year CDs. They wouldn't mature until he was 83 years old. In his court affidavit, Elliott accused the Hilands of misrepresenting the investments, a charge that is similar to testimony from other investors collected by the Corporation Commission in its own investigation.

But Elliott's bigger problem is his five viatical investments.

"I said to [Tyson Hiland], What about these new drugs and new medicines they have to prolong life?'" Elliott says. "And he said, Not with these viaticals they don't, they're too ill. These people are not given a year left to live by Carrington's doctor, the laboratory and their own doctors.'

"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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