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

published 16 December 2019

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.

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.

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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.

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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri