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Viaticals Fraud > Viatical
April 6, 2001
SAN FRANCISCO – California Insurance Commissioner Harry W. Low announced
the filing of felony charges against a San Francisco area viatical broker.
The charges are the result of an ongoing joint investigation by the California
Department of Insurance (CDI), the United States Attorney’s Office, the
United States Postal Inspection Service, the Federal Bureau of Investigations
and the Kentucky Department of Insurance.
Charles "Chuck" Cole, 49, was indicted for his exploitation of the
booming investment market in life insurance policies of terminally ill people,
primarily those diagnosed with HIV or AIDS. Cole was doing business out of
his home in San Francisco as Genesis Viatical. The viatical business is based
on the early payment of a life insurance policy for someone suffering from
a terminal illness, disease or chronic disabling illness.
In court papers unveiled April 5, 2001, Cole is alleged to have referred people
with terminal illnesses to insurance agents who would then attempt to obtain
new life insurance policies for them despite their terminal illness. According
to investigators, the insurance agents were also a party to the viatical settlement
scheme. According to investigators, the insureds would lie on their application
for insurance so their policy could be issued. Once issued, Cole would assist
the insureds in selling their policies in what is known as a viatical settlement.
Cole would then arrange for Kelco, Incorporated, out of Kentucky, to purchase
the life insurance policies when they knew, and had reason to know the policies
had been obtained fraudulently due to the insured's misrepresentation of their
According to investigators, Cole solicited people with diagnosed terminal
illnesses to purchase multiple policies from different companies, a practice
known as "stacking." Insureds would then hide their medical conditions
in a practice known as "cleansheeting." The insurance policies are
generally whole-life plans with a comparatively low face value between $25,000
and $150,000. The low value on the policy allows for rather loose criteria;
an applicant must be between 15 and 50 years of age and without serious medical
problems, but no physical examination or blood work is required.
The investor pays a percentage of the policy’s face value and continues
to pay the premiums. In return, the investor has the right to collect the full
amount upon the death of the insured. Investors in the viatical market typically
seek a high return. Nationally, many elderly and fixed-income people have been
targeted. They are usually tempted by the high or guaranteed rates of return
and the Good Samaritan justification. Before dying, the insured receives the
benefit of the money from the sale of the policy.
In 1999, the North American Securities Administrators Association added viatical
settlement fraud to its top ten most common investment scams. Insurance industry
estimates put annual losses from the type of fraud alleged in this case at
$1 billion. No figure was available on the amount of loss suffered by insurance
companies as a result of the alleged crimes disclosed on April 5, 2001.
According to investigators, Cole brokered the sale of more than $8,000,000
in life insurance policies to Kelco from October 1, 1997 to February 1, 1999.
The indictment alleges that he received commissions of 2% of that amount.
Cole has entered a plea of guilty and agreed to surrender his license to act
as a viatical broker in the state of California. Cole has also agreed to cooperate
with government attorneys and investigators in looking into industry-wide viatical
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