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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Landlords ‘positive’ about buy-to-let market despite Renters Reform BillNews New research has found landlords are not being put off investing in the rental market, even though the Renters Reform Bill is on its way.
-
Lloyds Bank unveils new pension service – is it any good?Lloyds is the first high-street bank to launch a ready-made pension service. How does it work, is it any good and who can save in it?
-
Christopher Columbus Wilson: the spiv who cashed in on new-fangled radiosProfiles Christopher Columbus Wilson gave radios away to drum up business in his United Wireless Telegraph Company. The company went bankrupt and Wilson was convicted of fraud.
-
Great frauds in history: Philip Arnold’s big diamond hoaxProfiles Philip Arnold and his cousin John Slack lured investors into their mining company by claiming to have discovered large deposit of diamonds. There were no diamonds.
-
Great frauds in history: John MacGregor’s dodgy loans
Profiles When the Royal British Bank fell on hard times, founder John MacGregor started falsifying the accounts and paying dividends out of capital. The bank finally collapsed with liabilities of £539,131
-
Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme
Profiles The Independent West Middlesex Fire and Life Assurance Company (IWM) offered annuities and life insurance policies at rates that proved too good to be true – thousands of policyholders who had handed over large sums were left with nothing.
-
Great frauds in history: Alan Bond’s debt-fuelled empireProfiles Alan Bond built an empire that encompassed brewing, mining, television on unsustainable amounts of debt, which led to his downfall and imprisonment.
-
Great frauds in history: Martin Grass’s debt bingeProfiles AS CEO of pharmacy chain Rite Aid. Martin Grass borrowed heavily to fund a string of acquisitions, then cooked the books to manage the debt, inflating profits by $1.6bn.
-
Great frauds in history: Tino De Angelis’ salad-oil scamProfiles Anthony “Tino” De Angelis decided to corner the market in soybean oil and borrowed large amounts of money secured against the salad oil in his company’s storage tanks. Salad oil that turned out to be water.
-
Great frauds in history: Gerard Lee Bevan’s dangerous debtsProfiles Gerard Lee Bevan bankrupted a stockbroker and an insurer, wiping out shareholders and partners alike.
