Compliance Solutions for Investment Advisers

Can It Get Any Worse Than This?

 The Securities and Exchange Commission today charged a father and son in Lexington, S.C., with operating a fraudulent investment program designed to illegally profit from the deaths of terminally ill individuals.

The SEC alleges that Benjamin S. Staples and his son Benjamin O. Staples deceived brokerage firms and bond issuers and made at least $6.5 million in profits by lying about the ownership interest in bonds they purchased in joint brokerage accounts opened with people facing imminent death who were concerned about affording the high costs of a funeral.  The Stapleses recruited the terminally ill individuals into their program by offering to pay their funeral expenses if they agreed to open the joint accounts and sign documents that relinquished their ownership rights to the accounts or any assets in them.

According to the SEC’s complaint filed in federal court in Columbia, S.C., once a joint account was opened and they had sole control, the Stapleses purchased discounted corporate bonds containing a “survivor’s option” that allowed them to redeem the bonds for the full principal amount prior to maturity if a joint owner of the bond dies.  Following the death of one of their terminally ill participants, the Stapleses redeemed the bonds early by citing the survivor’s option to the brokerage firm and misrepresenting that the deceased individual had ownership rights to the bond.  Their illicit profit was the difference between the discounted price of the bonds they purchased and the full principal amount they obtained when redeeming the bonds early.

“The Stapleses exploited the tragic circumstances surrounding a terminally ill diagnosis and turned the misfortune of others into a profit-making enterprise for themselves,” said Kenneth Israel, Director of the SEC’s Salt Lake Regional Office that investigated the case.  “The Stapleses deceived brokerage firms and bond issuers by casting themselves as survivors of a joint ownership situation when the deceased had no legal ties to the bonds at all.”

According to the SEC’s complaint, the Stapleses operated what they called the Estate Assistance Program from early 2008 to mid-2012.  They recruited at least 44 individuals into the program and purchased approximately $26.5 million in bonds from at least 35 issuers.  The Stapleses required the terminally ill individuals to sign three documents: an application to open a joint brokerage account with them, an estate assistance agreement, and a participant letter.  The latter two documents required the terminally ill participant to relinquish any ownership interest in the assets in the joint account, including the bonds that the Stapleses later purchased.

The SEC alleges that after a terminally ill participant died, the Stapleses wrote a letter to the brokerage firm where the joint account was held and asked that the bonds be redeemed under the survivor’s option.  In their redemption request letters, the Stapleses falsely represented that the deceased participant was an “owner” of the bonds.  The Stapleses did not inform the brokerage firms or bond issuers that the deceased program participants had signed the estate assistance agreements and participant letters relinquishing all ownership interest in the bonds.

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