SEC Accuses Life Settlement Company of Operating $5 Million Ponzi Scheme

The United States Securities and Exchange Commission announced it had obtained an emergency injunction and asset freeze of a California-based company that was operating as a life settlement broker.  According to the SEC, Daniel C.S. Powell, 29, and his company Christian Stanley Inc. ("Christian Stanley"), purported to operate as a legitimate company in the life settlement industry.  In a filing with the United States District Court for the Central District of California, the SEC obtained a temporary restraining order and asset freeze against Powell and Christian Stanley Inc., and obtained the appointment of a receiver to marshal assets related to the fraud.

According to a complaint filed by the SEC, Powell and Christian Stanley raised nearly $5 million through the offer and sale of unregistered securities in the form of senior secured corporate debenture indentures (the "Securities").  The Securities were typically for a term of five years, and paid annual interest payments ranging from 10% to 15.5%.  Investors purchasing the Securities received assurances that proceeds from the sale would be used to acquire either (1) life settlements, (2) Kentucky coal leases worth $11.8 billion, or (3) interests in certain goal mining reserve claims in Nevada.  Yet, of the $4.5 million invested with Powell, less than $90,000 was used for corporate purposes, and according to the SEC, not a single life settlement was purchased.  Instead, the majority of investor funds were used to fund Powell's personal and business expenses, which included the purchase of luxury cars and expensive trips.  

Powell and Christian Stanley were charged with several violations of the 1933 and 1934 Securities Acts, including the unregistered sale of securities and fraud in connection with the sale of securities - more commonly known as 10(b)(5) violations.  The SEC is seeking disgorgement of ill-gotten gains, civil monetary penalties, and any other relief deemed appropriate.

A Copy of the SEC Complaint is here.