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Florida attorney Michael McNerney has reached a settlement with the Securities and Exchange Commission (SEC) for being involved in a viatical settlement scam that defrauded investors out of $1 billion. Mr. McNerney, who was outside counsel to Mutual Benefits Corp., has been restrained by the SEC from future securities activity and ordered to pay $826 million in restitution along with other convicted defendants. He was also sentenced to time in prison for conspiracy to commit securities fraud.

A viatical settlement is the sale of an owner's life insurance policy to a third party for more than the cash surrender value, but less than its net death benefit. The seller of the policy is benefited with a lump sum payment. The buyer of the policy pays the monthly premium and receives the benefit of the policy when the seller or the insured dies. Viatical settlement transactions typically involve an insured who is terminally or chronically ill. A person who is terminally or chronically ill has a life expectancy of less than two years. From an investor's perspective, the return will depend on the seller's life expectancy and date of death. Therefore, viatical settlements cannot be equated with zero coupon bonds because the date of death or maturity is uncertain.

Mutual Benefits Corp. was accused of marketing viatical settlements as safe and secure investments through its sales agents and marketing materials. Other allegations include acquiring policies that could not be purchased or sold, improperly managing escrow funds, and pressuring doctors to approve false life expectancy figures.

Selling away is one available theory of liability in a viatical settlement scam case. Selling away is the inappropriate practice of an investment professional who sells or solicits securities or investments not held or approved by the brokerage firm with which the professional is associated with. Under NASD and FINRA rules, brokerage firms must approve investments offered by their investment professionals and supervise its sales. Viatical settlements are rarely approved as authorized investments at broker-dealers, and broker-dealers can be held liable for its salesmen's activities because it either failed to establish a reasonable supervisory system, or because it failed to implement an existing reasonable supervisory system. Even if the broker dealer did not know of Mr. the investment professional's activities, it can still be liable to investors for damages.

Have you suffered a loss in a viatical settlement? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.