You’ve probably never heard of Gloria Grening Wolk. She’s one of those freelance fraud fighters who pop up in odd corners of America, trying to save trusting people from being bilked. It’s not an easy or lucrative life. Like corporate whistle-blowers and other driven souls, she takes some wild and uncompromising swings. The industry swings back. Some have tried to shut her up.
Gloria polices those high-risk investments known as viaticals. They’re a legitimate tool. At their best, they’re like winning the lottery. At their worst, they’re frauds. A new and related investment, called a “life settlement,” carries the same range of risk.
In the classic viatical deal, a person who is terminally ill–and needs cash–sells his life-insurance policy for less than its face value. Investors agree to pay the future premiums. When the policy “matures” (that is, the victim dies), the investors get the insurance proceeds. The earlier the death, the higher the investment return.
As an example, take a $100,000 policy owned by an AIDS patient who is thought to have two years to live. Investors might buy it for $70,000. You’ll make $30,000 whenever death occurs. If the death does indeed arrive in two years, your gain comes to 19.5 percent, compounded annually. If the seller dies in just one year, you’d earn 42.8 percent on your money. If the seller gets better and lives for 10 years, you’re looking at 3.6 percent and probably less. (The seller, by the way, might get just $30,000 to $55,000. The rest goes to middlemen.)
The apple cart: Breakthrough drugs upset the viatical apple cart. HIV-infected people no longer died “on time.” Investors expecting a two-year “holding period” discovered that they had a very long-term investment, instead. They often had to start paying the policy’s premiums out of pocket, to keep it in force. If they couldn’t afford the premiums, their investment turned to dust.
The new life settlements, or “senior settlements,” work the same way viaticals do, except that the people who sell the policies aren’t terminally ill. These sellers simply don’t need life insurance any more. They do have health problems, but could still enjoy long lives. Good for them; bad for the investors who buy the policies.
There are virtually no disclosure rules governing viaticals or life settlements. So naturally they’ve attracted an undue share of hype and misleading claims. Type in “viaticals” on the Web, and you find false promises of huge “fixed returns,” “no risk,” “no sales charges,” “guaranteed.” Regulation is poor to nonexistent. Viatical and life-settlement sellers don’t have to list all the risks the way mutual funds do. You don’t get a prospectus. The firms that manage investors’ policies aren’t examined by the states for financial soundness. If the firm fails, those policies may lapse–and there goes your money.
There are tax risks, too. Viaticals are widely sold as investments for Individual Retirement Accounts. But by law, you can’t put insurance products into an IRA. Informally, the IRS thinks that viaticals are insurance, a spokesperson says. But trusts may be involved and there’s no official ruling there.
In other words, you don’t know what’s true–all of which brings me back to the passion of Gloria Wolk. She’s a former insurance agent and financial planner who came across viaticals during the AIDS holocaust. The sick were desperate for help and she gave it at no charge. As she examined the deals, however, she concluded that many patients weren’t getting fair prices for the policies they sold. Soon, she concluded that many investors also were being misled. She started protesting against bad practices. Hotly. Like all true advocates, Wolk names names and lets her indignation flow. Her self-published 1998 book, “Viatical Settlements: An Investor’s Guide,” is useful reading for people trying to separate the sales pitch from the facts (it’s $36.90, through her Web site, viatical-expert.net or Bialkin Books, 888-798-BOOK.) Earlier, she wrote a guide for sellers, “Cash for the Final Days” ($22.90). Her Web site sells copies of legal and regulatory actions taken against viatical firms (cost: in the $3 to $6 range).
A purge: Two of the firms treated harshly in her books, Life Partners of Waco and Accelerated Benefits Corp. of Orlando, filed libel suits against her, in Texas and Florida. She didn’t show up in court and they both won judgments against her, by default. The judges ordered her books banned and her Web site purged.
Wolk says she wasn’t officially served. One of her lawyers, Eric Stettin of Kuvin & Stettin in Ft. Lauderdale, got the Florida case dismissed and won $34,000 in legal fees (still unpaid). In February, Accelerated was banned from doing business in Florida, for concealing fraud. It’s banned in Oklahoma, too, unless it complies with state securities laws. Accelerated told NEWSWEEK it will appeal.
The Life Partners judgment was vacated, too, and the case settled on confidential terms. But this company stays on Gloria’s case. In a recent story, Forbes magazine mentioned her “Investor’s Guide.” Life Partner’s general counsel, Scott Peden, responded with a letter threatening to sue. He wrote that merely naming the book amounts to republishing “false and libelous statements made about our company.” Viaticals are a good investment, he insists. (A Forbes spokesperson had no comment on the letter.)
Whether Wolk’s books are libelous hasn’t been tried in court. I wouldn’t know. University of Oklahoma law professor Joe Long says she has more information on viaticals than anyone else he knows. One investor for whom she got money back calls her a “Doberman with a heart of gold.” In the investment marketplace, salespeople usually rule. The Glorias of this world need room to speak.
