AUSTIN – Texas Attorney General Greg Abbott has reached a settlement that will provide defrauded investors more than $20 million from a phony investment plan whose assets were frozen by the state. The frozen funds will largely be returned to teachers and retirees who were promised additional financial security and larger returns on their investments. Travis County District Judge Stephen Yelenosky approved the settlement.
According to state investigators, Howard G. Judah Jr. of Houston, a three-time felon convicted of financial crimes, and Gregory F. Jablonski of Castle Rock, Colo., sold unregistered securities to unsuspecting retirees. Their Houston firm, National Life Settlements LLC, falsely guaranteed lucrative investment returns, misrepresented “life settlement” policy investment offerings, failed to disclose material information to investors, and committed multiple violations of the Texas Securities Act and Texas Deceptive Trade Practices Act.
The defendants’ investment program offered notes – written promises to pay sums of money – that were purportedly secured by “life settlement” policies. Typical life settlements are investment vehicles wherein a life insurance policy owner sells their policy to a third party for more than the cash surrender value offered by the insurance company. The policy purchaser is obligated to make premium payments. In exchange, the purchaser receives the payout upon the insured’s death.
The State Securities Board deems life settlements, which are interests in the death benefits of older people, to be highly speculative investments. As a result, investors should not be misled by claims that they offer safe, guaranteed returns such as a certificate of deposit.
The defendants marketed and sold three principal investment schemes: Secured Notes, the Immediate Income Investment plan and membership interests in special purpose limited liability companies. Importantly, neither the defendants’ securities nor their salespeople were registered with State Securities Board, as required by law.
The state’s investigation revealed that interested parties were told their investments were guaranteed, had little or no risk, and would deliver up to a 10 percent annual return on the investment. Like the Secured Notes program, the Immediate Income Investment plan purported to have little or no risk. Investors were told their funds would yield a fixed rate of return and feature bi-weekly income payments.
The defendants’ marketing materials falsely claimed that National Life Settlements was “among the most secure, stable, and highest paying investment programs available today.” The materials also claimed that National Life Settlements’ investment opportunities were “not subject to market volatility.” According to the state’s enforcement action, those and other false statements constitute a “fraudulent practice” under the Texas Securities Act.
Between November 2006 and December 2008, the scheme raised approximately $28 million net from 240 individual investors. That amount includes more than $3.5 million from employees who withdrew assets from their pension funds to invest in the defendants’ scheme.
Of the $28 million the defendants raised from investors, approximately $4 million was used to compensate National Life Settlements’ unregistered securities dealers. It is illegal to pay commissions to securities salespeople who have not registered with the State Securities Board. More than $1 million had been transferred to defendant Judah and his family members, and more than $600,000 was paid to Jablonski and his company, JCJ and Associates.
Approximately $14 million – or about 45 percent of investors’ money – was transferred into an account owned by a firm known as NATT, LLC, which also controlled by Judah and Jablonski. The defendants’ transfers into the NATT account, which the investigation found were not disclosed to investors, began in June 2007.
The investigation also found that the defendants’ Internet-based advertisements and false statements constituted violations of the Texas Securities Act and Texas Deceptive Trade Practices Act. For example, the defendants convinced investors that their investments were subject to regulatory oversight. Marketing materials produced by the defendants falsely stated that their products were regulated by the Texas Department of Insurance. Defendants furthered their attempts to project security and legitimacy by falsely claiming that National Life Settlements was the largest provider of life settlements in the country, and that it had received over $60 billion from the Federal Reserve in 2008.