A judge's award of $380,000 to four investors in southeast Indiana could be just the beginning of bad news for sales agents who represented the failed Liberte Capital LLC, of Toledo.
A court-appointed receiver is stepping up efforts to try to recoup investor funds from a network of up to 500 agents nationwide who sold an unusual investment sometimes described as “death futures” on behalf of the Toledo concern.
Cleveland attorney Victor Javitch will seek the return not only of sales commissions but also of all money investors gave to Liberte brokers and sales representatives in what Ohio regulators describe as the largest insurance fraud case in state history.
The move follows a recent decision by Judge David Katz, of U.S. District Court in Toledo, expanding the receiver's authority to file claims against sales agents, Mr. Javitch said.
More than two years after federal prosecutors shut down Liberte Capital after a raid on its downtown Toledo headquarters, 2,900 people who invested with the firm have seen little of the $105 million they entrusted to the firm. But the case is approaching a critical stage with the scheduled start of key criminal trials in the next three months.
Company founder J. Richard Jamieson, of the Toledo suburb of Ottawa Hills, and escrow agent James Capwill - who at one point accused each other of trying to hire hit men to kill the other person - face accusations of conspiracy to commit mail fraud and money laundering.
Mr. Capwill, a former Akron-area accountant who is 38, will be tried Nov. 4 in federal court in Cleveland on separate charges that he looted $39 million from escrow accounts containing funds belonging to investors. He and Mr. Jamieson, 40, face trial together Jan. 28 in federal court in Toledo on the conspiracy charges.
Eight others charged in the alleged scheme are scheduled to be tried then too.
Thirteen defendants have pleaded guilty.
Liberte specialized in so-called “viatical settlements,” in which people with Acquired Immune Deficiency Syndrome and other potentially fatal illnesses obtained cash for health care by selling to investors the future right to collect on life insurance policies for a portion of their face value.
Federal prosecutors alleged that Liberte knowingly purchased policies from people who concealed positive HIV tests and other health problems when they obtained the coverage. The Toledo firm then allegedly used these policies as backing for millions of dollars in investments without warning potential investors that if the fraud were detected, insurance companies might cancel the polices and render them worthless.
Meanwhile, the Liberte Capital receiver continues attempts to recoup investor funds. About $13 million has been collected so far, said Gerald Kowalski, a Toledo attorney who represents investors.
The award made to the investors in southeast Indiana is separate from that. Jefferson County Superior Court Judge Fred Hoying on Oct. 10 ordered local agent Glen Smith to pay the damages to four people he recruited to invest with Liberte.
Mr. Smith, a longtime insurance agent in the Madison, Ind., area, didn't return telephone calls seeking comment last week. Previously, he denied responsibility for the losses and said he has been ruined professionally by his association with Liberte Capital.
The judge awarded the investors triple their losses, finding that Mr. Smith exaggerated the safety of the investments and should have known that money given to Liberte Capital was at risk, said plaintiff attorney Jennifer Joas.
The court-appointed receiver said he will file a motion in the Indiana court asking that any money recouped from the salesman be added to the pot that will be divided among all investors.
Bill Howard, a retired construction supervisor near Madison who was awarded $195,000 in the Indiana verdict, said that because of the agent's financial problems, he isn't certain he will ever see the money.
“I'm going to keep trying to collect,” Mr. Howard said. “We feel great. We knew he done us wrong even though he tried to say it was somebody else's fault.” The judge made the award after a one-day trial in a suit filed by Mr. Howard, his wife, and two other investors.
Additionally, the receiver said he has filed “hundreds” of claims against brokers and sales representatives and has reached settlements with some. None of those cases has gone to trial, however. Sales representatives were not employees of the Toledo company, but independent insurance agents and stock brokers who sold for the firm in exchange for commissions of 8 percent and higher.
Although claims filed against agents over the past 30 days since the court ruling have demanded the return of principal paid by investors as well as sales commissions, the receiver said he recognizes that many agents can't afford to pay. “We're got to be realistic,” Mr. Javitch explained. “Our objective is to get some money. We are flexible.”
Few of the agents were covered by professional liability policies that could have been used to repay the money, the receiver said.
Lawsuits are pending in federal court in Toledo against two banks and three brokerages that are accused of failing to properly monitor accounts set up by Mr. Capwill - allegedly with investor funds which he then improperly spent on himself or others.
Liberte Capital investors, many of whom are retirees on fixed incomes, were hurt badly by the company collapse.
“... Some of them are dying or ill and in desperate need of funds,” said their attorney, Mr. Kowalski. He has asked Judge Katz to approve a partial distribution before all funds are collected.
But the parties are awaiting an accountant's report expected early next year on how much of the recouped money belongs to Liberte investors and how much belongs to people who invested with another firm with which Mr. Capwill was involved.
Also to be determined is how the money will be divided among investors. Judge Katz has promised to rule on the matter by Nov. 30, Mr. Kowalski said.