Update - 7/13/10
The Receiver has filed a Sixth Motion for Order to Allow "A" Claims. Click here to see a copy.
Update – 5/13/10
An Order granting the Receiver's Fifth Motion for Order to Allow "A" Claims has been entered. Click here to see a copy.
Update – 4/05/10
The Receiver has filed a Fifth Motion for Order to Allow "A" Claims. Click here to see a copy.
Update – 1/07/10
The Receiver has filed a Fourth Motion for Order to Allow "A" Claims. Click here to see a copy.
Update – 12/09/09
The Receiver has filed Receiver's Interim Report for the period ended October 31,2009. Click here to see a copy.
Update – 5/28/09
The Receiver has been informed that the carrier will honor the Court's order with respect to FOW-S(2), and will promptly send a check to the Receiver. The Receiver is prepared to make immediate distribution to investors. The Receiver will need to collect W-9 information in order to comply with his federal tax reporting obligations, and so investors in FOW-S(2) should expect a communication from the Receiver in that regard.
Update – 5/26/09
The Court considered and granted the Receiver's Motion with respect to FOW-S(2), which sought to direct the payment of the death benefit of that policy to the Receiver for the purpose of effecting a distribution to the investor-owners of record net of the premiums paid by the Receiver. Several investors objected, and the Examiner submitted those objections in advance of the May 18 hearing date. The Court addressed the matter on the papers, and issued an order on May 22. The Receiver is immediately seeking to have the insurance carrier proceed consistent with the Court order, and intends to effect the distribution as quickly as he possibly can. Click here for a copy of the Court's order.
Update – 5/12/09
This update concerns the Receiver's investigations into the bonds that were supposed to have supported the life settlement investments at issue. The Receiver has concluded his investigation into these bonds, and reached the firm opinion that no recovery from these bonds will be possible.
IFS - The Receiver determined early in this matter that IFS was a mere sham. This was announced early in the case, and nothing has changed in that regard. As previously noted, one of the principals committed suicide shortly after being indicted for perpetrating the IFS fraud, and the other principal is in bankruptcy.
PCI - The Receiver next turned his attention to Provident Capital Indemnity. PCI continues to purport to offer bonds in support of life settlement investment offerings. On the other hand, the States of Texas and Florida have taken action against PCI, with Texas directing PCI to cease and desist the offering of the bonds in Texas because, among other things, it found PCI to be making fraudulent statements relative to the supposed bonds. Also, according to the Texas State Securities Board, one of its original principals, Harold Maridon, was convicted in 1998 of conspiracy to commit mail fraud and wire fraud. There is a website for PCI at www.providentinsurances.com. The site identifies the PCI managers as being located in San Rafael-Heredia, Costa Rica. The Receiver was able to make contact with Minor Vargas Calvo in San Rafael-Heredia, who claims to be the manager of PCI. He thereafter met with Mr. Vargas in Costa Rica, and discussed the bonds. The office of PCI is located in a home. The Receiver requested verification of the assets of PCI, which Mr. Vargas refused to provide. The Receiver requested confirmation that PCI would honor the bonds involved in this matter, which Mr. Vargas refused to do. Mr. Vargas acknowledged that PCI issued bonds, but he claimed that premiums were not paid in their entirety. The Receiver is unable to contest the contention as to the nonpayment of the premiums because the only witnesses to the total amount due are Mr. Neuhaus, who is deceased, and his daughter, who is under indictment and has asserted her Fifth Amendment rights in response to all questions about this matter. The Receiver therefore requested that Mr. Vargas at least return the unearned premium, and Mr. Vargas did send back one of the premium payments, but he thereafter refused to pay back anything further. The Receiver has concluded from these facts that PCI is a dead end as far as recovering funds for investors. In addition to his belief that PCI is most likely a scam comparable to that of IFS, any suit against PCI would lack evidentiary support as to the full payment of premiums, and any judgment would have to be collected against a foreign party, who does not appear to actually have substantial assets.
Balgi-SinoRe - Meanwhile, the Examiner's office investigated the Balgi bonds, which were supposedly assumed by Sino Re. Australian government records indicate that there was, at least at one time, an Australian entity registered under the name Sino Reinsurance Pty. Ltd. Its registered agent was Chooi S. Beh. There is a website for Sino Re at www.sinoinsurance.com.au. According to the website, the "Sino Insurance group of companies" are run by Chooi Beh out of his accounting firm in Melbourne. E-mail to the administrator of the site went through but was not answered. A call to Mr. Beh's office in Melbourne resulted in a brief telephone conference with him. Mr. Beh would not confirm whether he was the present owner of Sino Re, but did state that we had reached the correct office and that a representative of Sino Re would call back. No one ever did. Prior to the Receiver's involvement, the SEC conducted its own investigation. The SEC located a broker, Thomas Miller, who acknowledged that he sold the Balgi bonds to SIS. In response to deposition questions asked by the SEC, Mr. Miller stated that he was unable to verify the assets of Balgi or Sino Re. Mr. Miller also testified that 30% of the premium dollars went to him. He said that Balgi was a company owned by Princess Amal Riakiah of Brunei. He claimed that Sino Re purchased the bonding business of Balgi and assumed responsibility on the bonds. However, other than Mr. Miller's statement, there does not appear to be any evidence to support his assertion. Based upon these facts, the Receiver has no confidence that there is any real substance to Sino Re, nor that he would be able to successfully recover anything from Mr. Beh. Again, the Receiver has only the prospect of foreign collection against a party who likely does not have substantial assets.
Update – 5/5/09
The Receiver has continued to manage the portfolio consistent with his expressed intention to borrow funds and pay premiums in the hope of obtaining more maturities.
Recently, the policies designated FOW-S(1) and FOW-S(2) matured. Both policies have a face value of $1.5 million. One policy is owned by the Receiver, and the other is largely owned by investors. With respect to the latter policy, the Receiver has sought relief to recover the premiums that he paid from the policy proceeds, and otherwise he intends to facilitate the payment of the proceeds to the record owners. A hearing in this regard is scheduled for May 18, 2009.
The maturity of this policy will provide sufficient additional funds to allow the Receiver to continue to pay premiums for at least another year.
Update – 12/10/08
With respect to the motions mentioned in the Examiner's 12/8/08 update, the Court ruled today on the first set of such motions to compel the remaining investors to either pay their share of the premiums or forfeit their interest. The Court granted the motions, and directed that such investors shall pay their share of the premiums, or shall forfeit their interest. Investors who pay their share of the premiums will retain the right to receive their respective percentage of any death benefit. Investors who fail to do so will receive a claim to a pro-rata share of the net proceeds of the receivership estate, just like any other investor.
General Update – 12/8/08 (corrected)
The Receiver continues to be able to pay premiums to support the portfolio. Presently, he has drawn down approximately $2 million against a $3 million line of credit.
The Receiver's most recent financial report was presented on October 21, 2008: Receiver's Second Report The Receiver will continue to provide periodic reports that detail the performance of the policies. As those reports are filed, they will be posted on this site and the Receiver's site.
The Receiver continues to work through the issues with investors in the multi-owner policies. Generally speaking, investors are electing to transfer their ownership to the receivership in order to obtain the benefit of premium financing, but there are still a number of investors who have elected not to do so. The Receiver's website contains a detailed section as to the progress in this area, and so the Examiner has not attempted to duplicate that on this site. See http://www.secreceiver.com/sis/general_info/index.htm
Where 80% or more of the investors in a particular policy have elected to transfer ownership to the Receiver, the Receiver has begun to file motions seeking for the Court to compel the remaining investors to either pay their share of the premiums or forfeit their interest. The Receiver's position is that under such circumstances, it is not equitable for the remaining investors to receive a free ride. These motions will be considered by the Court in due course.
The Receiver continues to evaluate all alternatives, but presently is attempting to honor what appears to be the preference of the vast majority of investors in favor of continuing to pay premiums in the hope of a maturity. The current annual premium carry is approximately $1 million, and so the Receiver will be evaluating this strategy more closely in the coming months depending upon whether there are substantial maturities.
Update 10-21-08
The Receiver has presented his Second Interim Report. To view this report, click on the interim "Interim Reports" tab above.
Update 8-1-08
On July 28, 2008, the Court entered an Order authorizing the Receiver to abandon 13 insurance policies because several investors in each policy refused to transfer their ownership interest to the receivership. Abandon means that the Receiver will no longer make the premium payments required on the policies. This means that each of the 13 policies will lapse (terminate) and each investor who owns a part of each of the 13 policies will lose their entire investment unless the investors can find a way to pay the premiums. This is a very serious event and can still be avoided if the investors who refuse to sign over their ownership interest will simply do so in the next couple of weeks.
A list of policies addressed in the Order is available on the Receiver's website along with the names and phone numbers of the investors who have not transferred their interest to the Receiver.
Update May 13,2008
The Receiver has prepared a First Interim Report. To view this report, click on the interim "Interim Reports" tab above.
Update May 2008
The Receiver and Examiner have developed a list of frequently asked questions and answers that we hope will be helpful to all concerned. You can review these at this link.
Update February 2008
The Receiver is sending out letters concerning situations where the Receiver has control of a number of policies in which the Receiver is shown only as a partial owner. Some policies have only a few other owners and some have as many as 50. This situation has arisen as a result of the way Mr. Neuhaus operated his business at one point in time. In all of these policies, the Receiver's interest, which he now holds in place of SIS or Neuhaus, is extremely small (less than 3%).
Since the appointment of the Receiver, he has paid the full premiums for each of these policies and they are all still in force. There have been limited funds with which to pay these premiums and the Receiver has had to borrow money from a bank to keep the policies from lapsing.
As to policies that are owned by multiple owners, the Receiver cannot sell or use these polices as collateral with out the consent of each of the owners. Moreover, given that he only has a very small partial ownership interest in these policies, it does not make financial sense for him to continue to pay the full amount of the premiums due.
The Receiver has devised a plan to deal with these policies in light of the fact that he currently is not shown as the 100% owner but is in fact paying all of the premiums.
He is sending a letter only to those investors who are involved in multiple owner policies.
The letter will explain the following proposal:
Examiner's Appointment and Qualifications
On December 3, 2007, Steven A. Harr was appointed by the United States District Court for the Eastern District of California, Sacramento Division as the Examiner in the receivership of Secure Investments Services, Inc. ('SIS"). The role of the Examiner is to (a) keep the investors informed of significant information on going in the Receivership; (b) to establish a means of communication for investors to ask questions and to the extent possible, get answers; (c) to serve as a sounding board for the Receiver in key decisions affecting the receivership and investors, and; (d) as requested, to inform the court of his opinions on key issues and to communicate what he has heard from the affected investors in the matter.
Mr. Harr has extensive experience serving as an Examiner in receiverships involving companies who principal assets include viaticals or life settlement contracts. His past matters include serving as examiner in Securities and Exchange Commission v. Advanced Financial Services, Inc. et. al. , CA 3-02CV-0282-P in the Northern District of Texas, Dallas Division, Michael J. Quilling v. Trade Partners Inc. et. al, 1:03- CV-236 in the Western District of Michigan, Southern Division and Securities and Exchange Commission v. ABC Viaticals, Inc. et. al , 3-06-CV-2136-P, in the Northern District of Texas, Dallas Division. His current websites on other viatical/ life settlement related cases include www.tpexaminer.com and www.abcexaminer.com.
Mr. Harr is a founding partner of the law firm of Munsch Hardt Kopf Harr P.C. His law firm is a broadly based commercial firm with extensive experience in SEC related receiverships. His firm has offices in Dallas, Austin and Houston Texas.
Summary of Key Events Prior to the Examiner's Appointment
The following is a summary of the key events that have occurred since this matter was filed by the SEC. Many daily events are on going with regard to all of the issues in the case, but these represent the more important issues that all interested parties need to understand.
- Claims of the SEC/ Appointment of the Receiver – On August 23, 2007, the SEC filed suit against Secure Investment Services, Inc., American Financial Services, Inc., Lyndon Group, Inc., Donald F. Neuhaus, and Kimberly A. Snowden and sought a restraining order and the appointment of a receiver to prevent further fraud on investors and loss of the current investors interests in the assets of the entities included in the suit. A copy of the Complaint setting out the SEC's claims and the relief requests are attached at this link. Complaint. A copy of the order appointing Mr. Quilling as Temporary Receiver is attached at this link. Temporary Receiver Order. The order making Mr. Quilling's appointment permanent was later entered and can be accessed at the attached link . Order Appointing Receiver Reading these documents will give the investor a more complete understanding of the claims made and the role and authority of the Receiver. On October 31, 2007, Defendant Neuhaus agreed to an injunction in favor of the SEC against his activities. Agreed Injunction Order On November 7, 2007, the SEC's request for a preliminary injunction was granted as to Defendant Snowden, who had agreed to the relief sought with minor reservations. Snowden Injunction Order
Most all aspects of the relief requested by the Receiver have been agreed to by the Defendants and the SEC. The following are the more important events in the case thus far.
- Pooling of all Receivership Assets - On August 29, 2007, the Receiver filed his Stipulated Motion to Pool Assets and on September 7, 2007, the Court entered its Order that all assets of the receivership be "pooled". Essentially, the law supporting this type of relief holds that because investor money was substantially commingled by the Defendants causing money paid by one investor to be used by the Defendants to preserve the assets of others, it is in the best interest of all investors to create a large common asset pool to allow the assets to be preserved . In these types of situations, there is rarely enough cash on hand to preserve all the assets of the defendant company. That was clearly the case here. At the time the Receiver took over SIS, he had about $65,000 to which there was no claim and on going expenses for just premiums in excess of $100,000 a month. Without pooling, there would have been not have been enough money to pay the premiums due and although there may have been some extraordinary steps taken to "fire sale" some of the policies, the most reasonable and prudent step to take was to pool all the assets and arrange a loan to keep all policies current. Without pooling , the policies would have lapsed and the investors would have lost their entire investment. As it was, premium dollars were being taken from new investors, in a ponzi fashion. The order to pool the assets of the Receivership has the impact of removing each investor's individual claim to a specific policy in exchange for a claim in the same amount of their investment against the pool. At present, the Receiver has funds to pay the premiums but that money is running out and he is actively working to arrange for financing that will allow for the orderly liquidation and/or management of the portfolio for all concerned.
Some have inquired as to whether the investors can individually maintain the premiums on policies in which they invested. This strategy has been used in other viatical receiverships but was not practical in this case. First, there was no money to maintain the policies while the planning, notice to all concerned, hearings required before the court and voting by investors occurred. Second, to initiate such a process and methodology requires a great deal of professional time and expense to the receivership. Third, because of the commingled use of investor funds in the past by SIS and its principals, as well as the marketing of this investment as not requiring additional funds, the Receiver believes it is inequitable to put some investors in the position of now losing their investment because they can't pay additional premium dollars.
- Funding - On August 29, 2007, the Receiver filed his Stipulated Motion to Obtain Interim Bank Financing and on September 6 , 2007, the Court entered its Order allowing the Receiver to enter into a funding arrangement with Sovereign Bank of Dallas. The line of credit is for $200,000 and has been substantially expended. The line is secured by certain of the policies and the Receiver is working with Sovereign to expand the line of credit to a sum of $3,000,000 to allow for the orderly evaluation, marketing and sale of the portfolio.
- Insurance Policy Expertise – On August 29, 2007, the Receiver files his Stipulated Motion to Employ National Viatical, Inc. ('NVI") NVI will serve the Receiver in a number of capacities, including reducing the premium payment to the lowest amount, monitoring the need to pay premiums and monitoring any maturities of the polices. On September 6, 2007, the Court entered its Order allowing the employment of NVI.
- Assets - The receivership essentially has the following assets: (1) life insurance policies in the approximate death benefit of $55,000,000 costing about $1.3 million a year in premiums; (2) the equity in Donald Neuhaus' house and his interests in all of the policies in the portfolio and a number of other policies; (3) some cash on hand. The belief of the Receiver is that the policies should be marketed and sold in a manner that will produce the highest price for the benefit of the investors. There is currently no plan to hold all of the policies for any substantial length of time. Some policies that have sufficient cash value to maintain their premium requirements maybe held to increase the chance of maturity and thus a greater return to the investors.
There are essentially two groups of policies. First, there are policies that are owned or controlled by the entities in receivership ("Receivership Policies") . Second, there are policies that on the records of the respective insurance companies have as many as 50 owners ("Multiple Owner Policies"). These exist as a result of Mr. Neuhaus's business method where he would add investors as "owners" on the records of the policies. There are 33 Receivership policies representing approximately $31,000,000 in death benefits. They are held in several of the names in which Mr. Neuhaus did business, but all are controlled by the Receiver. Nine of these policies representing approximately $16,000,000 in death benefit are on the lives of a husband and a wife and they do not pay until the second of the two dies. A few of these polices are on relatively young people (60-70's). Further, as a general matter, history has also shown that the life expectancies communicated to investors at the time they invested cannot be relied on in any way. Given the current strength of the market for these kinds of policies, the Receiver is inclined to establish a set of procedures for their marketing and sale.
The Multiple Owner Policies will need to be addressed differently. The Receiver believes that investor funds have been used to pay premiums on these policies and for this reason they too should be included in the pool. He is currently paying the premiums on these polices for the benefit of the multiple owners. His intention is to contact the owners and ask them to stipulate that these policies are part of the pool for the benefit of all concerned. He further is trying to get complete information on the owners from the insurance companies that issued the policies, but they have rules against releasing such information and will likely require the Receiver to ask the Court for an order requiring the information to be released. In the event they do not agree, it is the Receiver's current plan to turn the policies over to the owners and they will then have to decide among themselves how the premiums will be paid and will be responsible for the payment of the premiums.
As stated above, the Receiver also has certain assets formerly owned by Donald Neuhaus and Kimberly Snowden. On October 25, 2007, the Receiver, Mr. Neuhaus and Ms. Snowden filed a Stipulated and Unopposed Order Authorizing Receiver's Entry into Compromise and Settlement Agreement. On October 29, 2007, the Court entered its Order approving the settlement and the transfer of ownership of certain assets to the Receiver.
- Claims Process - The Court has approved a claims process. On October 25, 2007, the Receiver filed a Stipulated Motion to Approve Claim Procedure Plan and Claim Form. On October 29, 2007, the Court entered its Order approving the Receiver's plan.
ALL AFFECTED INVESTORS OR OTHERS OWED MONEY BY SECURE INVESTMENTS SERVICES, INC, AMERICAN FINANCIAL SERVICES INC., LYNDON GROUP, INC, DONALD NEUHAUS, CASH FOR LIFE OR EMPIRE BUSINESS GROUP, INC. SHOULD HAVE BEEN MAILED A CLAIM FORM AND INSTRUCTIONAL COVER LETTER. THESE CLAIM FORMS MUST BE RETURNED IMMEDIATELY TO THE RECEIVER AS INSTRUCTED. IN THE EVENT YOU HAVE NOT RECEIVED A CLAIM FORM AND COVER LETTER, PLEASE REQUEST ONE BY SENDING AN EMAIL TO STOMASKY@QSCLPC.COM OR BY CONTACTING THE EXAMINER AT ExaminerSIS@munsch.com.
- Bonding Companies - Many investors were sold interests in the SIS or other related insurance policies on the premise that in the event the viator did not die within the stated life expectancy plus a certain period after death, a bonding company would purchase the policy for the full death benefit and the investors would be paid. A substantial number of the policies were bonded by International Fidelity and Surety, Ltd. ("IFS") IFS also issued bonds for life settlement investments sold by ABC Viatical, Inc. An extensive investigation in the ABC Viatical receivership has revealed that IFS is a fraud. The Receiver in ABC holds a $48,000,000 judgment against IFS and one of its principals, Mark Wollock, who is both in bankruptcy and under Federal indictment. The other principals, David Goldenberg was indicted in California, arrested in Michigan and moved to California and upon making bail, hung himself. The Receiver will not rely on the promises or obligations of IFS in planning a strategy for this matter.
There are two other bonding companies that was used by SIS. The Receiver has conducted a preliminary investigation, and is doubtful that they will be of any value to the investors in this matter.
- Communication - Please feel free to email or voicemail the Examiner as you have questions. Answers or responses will be provided promptly. Also, please consult this web site periodically for updates. There are times when a lot of new information is included and there are times when there is no significant activity.