Opinion ID: 2977962
Heading Depth: 2
Heading Rank: 1

Heading: The Liberte Fraud

Text: Liberte Capital Group (“Liberte”), an Ohio-based “viatical investment company,” purchased life insurance policies from “viators”–policyholders who are terminally ill or who are elderly and in poor health–in exchange for paying the viators an up-front lump sum. Liberte persuaded three elderly individuals to purchase life insurance policies from MLIC and immediately assign the policies to Liberte, which would pay the policies’ premiums. The viators’ purchases of the insurance policies with the intent to re-sell them to Liberte immediately constituted insurance fraud, because the viators never intended to insure their own lives. Liberte’s collusion with the three viators was part of a larger scheme in which Liberte fraudulently procured viators’ insurance policies and sold them to almost three thousand investors, who collectively invested almost $100 million in Liberte. Liberte Capital Group, LLC v. Capwill, 148 F. App’x 426, 428 (6th Cir. 2005). Liberte contracted with Viatical Escrow Services, LLC (“VES”), an entity controlled by James A. Capwill (“Capwill”), to manage the accounts of the insurance policies it purchased from viators; Liberte assigned its ownership and beneficiary rights in the policies to escrow accounts managed by VES. Liberte Capital Group, LLC v. Capwill, 248 F. App’x 650, 651 (6th Cir. 2007). Liberte also entered into contracts with independent brokers to locate investors interested in purchasing stakes of the insurance policies assigned to Liberte and held by VES. Once the brokers had identified potential investors and persuaded them to invest, Liberte then sold stakes in the expected proceeds from the viators’ policies to the investors. Liberte, through the brokers, promised the investors a share of the payouts upon the viators’ death, in exchange for up-front payments to the VES escrow accounts. Liberte then used the payments to VES to pay the premiums on the viators’ policies. Liberte’s brokers did not No. 08-3342 Wuliger v. Manufacturers Life Ins. Co. (USA) Page 3 disclose to the third-party investors that the investors would be purchasing stakes in fraudulently procured insurance policies. While Liberte was fraudulently acquiring insurance policies from issuers such as MLIC and was, through its brokers, fraudulently inducing investors to purchase shares of the fraudulently procured policies, VES in turn was defrauding Liberte. Capwill, through an investment vehicle he controlled called Capital Fund Leasing, LLC (“CFL”), diverted the funds that were supposed to be held in VES’ escrow accounts to various securities brokers, who ultimately lost the funds. See id. In April 1999, Liberte sued VES, CFL and Capwill in the Northern District of Ohio for defrauding Liberte and losing the money that investors had placed in the escrow accounts in exchange for their stakes in the viators’ insurance policies. Id. In July 1999, the district 1 court placed VES and CFL in receivership, and authorized the Receiver to “oversee and to administer the business and assets of VES and CFL . . . to take and maintain exclusive and complete custody, control and possession of all the assets belonging to VES and CFL.”2 Id. (internal quotations omitted). At that time, Liberte was considered a creditor of the received entities, because its own fraud had not yet been discovered, and the escrow accounts that were fraudulently managed by VES, CFL, and Capwill included Liberte’s proceeds from sales of the viatical policies to investors. Shortly after Liberte filed suit against VES, CFL and Capwill, the Securities and Exchange Commission (“SEC”) discovered Liberte’s fraud. As a result, the United States charged Liberte’s chief executive, J. Richard Jamieson (“Jamieson”), with buying and re-selling fraudulently obtained insurance policies through Liberte. See United States v. Jamieson, 427 F.3d 394, 399 (6th Cir. 2005). In addition to indicting Jamieson, the government initiated a separate forfeiture action against Jamieson and Liberte, also in the Northern District of Ohio, and obtained a court order enjoining Jamieson and 1 Victor M. Javitch was the original receiver in this action. The district court appointed William T. Wuliger to replace him on January 30, 2006. The two receivers in this action are herein collectively referred to as the “Receiver.” 2 The receivership was subsequently expanded to include Capwill’s assets as well. Liberte, 248 F. App’x at 652. No. 08-3342 Wuliger v. Manufacturers Life Ins. Co. (USA) Page 4 Liberte from further defrauding their investors or insurance companies. In October 2000, the district court in the forfeiture action ordered that Liberte’s assets were subject to control of the court, and that a receiver would be appointed to dispose of Liberte’s remaining assets. In December 2000, Liberte’s action against VES, CFL and Capwill was transferred to the district judge in the forfeiture action. With the judge in the forfeiture action now presiding over all of the proceedings at once, the Receiver was authorized to administer the assets of Liberte as well as VES and CFL, and to sue insurance companies to recoup premiums on insurance policies Liberte fraudulently procured, all for the purpose of gathering as much money as possible for Liberte’s investors.3 With the fraudulent schemes of Liberte and VES unraveling, the premium payments on the three policies that the viators had fraudulently purchased from MLIC in collusion with Liberte–premiums that Liberte had been paying from the funds it had channeled from investors into VES–ceased in 2001.