Alleged New York Insurance Scammers Face Civil, Criminal Charges

Insurance is often a vehicle for securities fraud. Scam artists lure investors with the promise of easy profits earned through the sale of various insurance products. But those promises often do not translate into reality, leaving investors to pick up the pieces.

SEC v. Griffin

The SEC recently charged two men with running just such an insurance-based scheme. In a civil complaint filed in New York federal court on July 30, the SEC charged the men, together with eight companies controlled by them, of cheating investors of upwards of $8 million. The SEC further accused one of the men of misappropriating investor funds for the personal use of his wife and himself.

James P. Griffin and John Wolle operated several companies under the name 54Freedom. The “54” purportedly represented “the 54 million Americans with disabilities.” Griffin and Wolle initially proposed selling insurance products to this market. According to the SEC, the two men raised “at least $8 million from at least 125 investors” in support of their business plan.

Later, they shifted their business towards marketing “charitable gift annuities.” These are common estate planning devices used by individuals who wish to support a particular charity. The idea is the donor transfers cash or other property to the charity, which in turn agrees to provide the donor with a predetermined amount of income during his or her lifetime. When the donor dies, the charity keeps whatever property remains.

Griffin and Wolle allegedly sold $2 million of fraudulent charitable gift annuities to 16 investors. Specifically, they sold annuities in a “foundation” under their control. This foundation was then supposed to purchase the actual annuities to provide investors with the promised income. But according to the SEC, this foundation was a scam; it never purchased any annuities “and it did not operate as a charitable organization.” The investors’ funds were simply mixed together with other 54Freedom entities. Indeed, the SEC accused Griffin of using a portion of the annuity funds to pay his personal expenses. Other funds were used to make what the SEC described as “Ponzi-like payments” to initial investors in order to cover up the scheme.

A week before the SEC filed its civil complaint, the United States Attorney’s Office in Syracuse, New York, announced Griffin’s arrest and indictment on criminal charges. Griffin pleaded not guilty to 18 counts of wire fraud, mail fraud and money laundering. As always, a criminal defendant is presumed innocent unless and until convicted in a court of law.

Beware of Exaggerated Claims

The SEC noted Griffin and Wolle’s alleged scheme depended heavily on exaggerated sales pitches. In one case, regulators said they promised investors in a potential soccer book would receive “300% returns.” Of course, no such book was ever published.

Investors should always do their due diligence before trusting anyone with their money. They must be especially skeptical of fantastic promises of large profits with “little or no risk.” And investors should always proceed with caution before investing in companies whose business models depend on products unfamiliar to them. These are all warning signs of a potential scam.

If you have been the victim of an investment scam and need advice from an experienced Florida securities fraud attorney, contact Gregory Tendrich, P.A., in Boca Raton today.