The death futures market, heavily promoted as an investment innovation guaranteeing high returns, is in disarray after the collapse of companies both in the UK and US.
One UK investment company that specialised in this bizarre sector is in liquidation, with British investors facing losses of up to $40m (£22m). The major US broker trading in these policies is also in receivership with losses of up to $1bn, and is beset with regulatory investigations, prosecutions for fraud and allegations of money laundering.
Shepherds Select Fund, which was based in the Isle of Man, invested solely in so-called traded life policies (TLPs), which are not regulated in the UK. Run by Mike Abraham, 61, Shepherds Select Funds bought its non-HIV-positive TLPs from a Florida-based company called Mutual Benefits Corporation.
But MBC went into receivership in May 2004 amid allegations of fraud and money laundering. With all 100 per cent of its investment in MBC, the Shepherds Select Fund itself went into liquidation last May, most of those who lost money in the fund were experienced wealthy investors and even independent financial advisers. Even so, some investors have lost their entire life savings.
Shepherds' liquidator, Mike Simpson of PricewaterhouseCoopers, says it is difficult to estimate how much money investors might eventually get back. "Shepherds has invested in fractional policies, which remain owned by MBC, rather than whole policies they would have owned themselves." He adds that how much and when money will be recouped from America is in the hands of MBC's receivers. Mr Abraham denied that there was any malpractice or that Shepherds had been negligent. "There had been problems with MBC going back to 1996. But if you know the American scene you would know this was nothing unusual."
He claims that MBC was a very good company that "made one big mistake" in angering a Florida politician. "Three days later the Securities and Exchange Commission arrived on MBC's doorstep and then closed them down." In a London High Court judgement given this month it was revealed that huge commissions from MBC were paid into an offshore company controlled by Mr Abraham. In the 2003 financial year alone, some $1.3m was paid from over $10m worth of business.
Mr Abraham denied that the commission rate was as high as 13 per cent. "I think it was more like 10.25 per cent," he said, claiming that there was nothing unusual about such rates. "This is all in the Shepherds accounts. Most of it went back into Shepherds to enhance marketing and only a small percentage went to pay me and cover my running costs." Mr Simpson, the Shepherds liquidator, was unable to confirm this. "I am still investigating where this money went," he said. Mr Abraham is now involved with a traded policy investment company called Indemnity First with an address in Marbella. Its publicity does not mention the collapse of Shepherds.
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