Great frauds in history: Joel Steinger and the Mutual Benefits Corporation

Joel Steinger and the Mutual Benefits Corporation specialised in selling viaticals, shares in the life-insurance policies of the terminally ill.

Joel Steinger was born in Brooklyn in 1949 and in later life became friends with the gangster Meyer Lansky (known as the "Mob's Accountant"), after his brother redecorated Lansky's house. Steinger eventually married the daughter of a Miami banker, who is alleged to have been one of Lansky's associates. After a spell working at his father-in-law's import/export firm, Steinger set up a boiler room selling phoney commodity options, resulting in a conviction for fraud and a lifetime ban from the securities industry. This didn't stop him running a variety of scams related to investments in everything from oil wells to diet pizza. In 1994 Steinger set up the Mutual Benefits Corporation (MBC).

What was the scam?

MBC specialised in selling viaticals, shares in the life-insurance policies of the terminally ill. MBC would buy the life-insurance policies of Aids patients at a discount to the death benefits and sell portions of them on to investors, with part of the money supposedly set aside to cover any remaining insurance premiums. Many of the medical reports that MBC provided to investors were doctored so that the patients' prognoses appeared worse than they were. Steinger started skimming off large sums of money, relying on money from new sales to cover premium costs.

What happened next?

Despite hundreds of complaints from investors angry that 90% of patients were living much longer than expected, lax oversight from state regulators and a botched investigation in 1998 by the Securities and Exchange Commission allowed MBC to operate for more than a decade. In 2001 the doctor who made many of the false estimates of life expectancy was arrested for fraud and eventually turned on Steinger in return for a lighter sentence. As a result, the SEC finally shut down MBC in 2004 and Steinger would be sentenced to 20 years in prison in 2014.

Lessons for investors

According to estimates from US authorities, around 30,000 investors lost around three-quarters of the estimated $1.25bn that MBC raised. The viaticals industry is notoriously prone to fraud (indeed, MBC argued that it was the only honest operator in the industry) as investors are essentially relying on doctors' guesswork. In general, situations where a seller has much a better idea of an asset's true value than the buyer (information asymmetry) should be avoided.

Recommended

The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
Why you should expect another stockmarket crash
Stockmarkets

Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee
16 Apr 2021
World's biggest fraudster Bernie Madoff has died – what was his scam?
Investment strategy

World's biggest fraudster Bernie Madoff has died – what was his scam?

Bernie Madoff, perpetrator of the world's biggest Ponzi scheme, has died in prison at the age of 82. Matthew Partridge looks at his massive fraud sche…
14 Apr 2021
Coinbase, America’s largest crypto exchange, is going public. Should you invest?
US stockmarkets

Coinbase, America’s largest crypto exchange, is going public. Should you invest?

Cryptocurrency exchange Coinbase is to list on the Nasdaq stock exchange, hoping to cash in on the current crypto-mania. Saloni Sardana looks at wheth…
13 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021