Investment Fund Law Blog
In a case that gives the term “family values” an entirely new meaning, the Securities and Exchange Commission (“SEC”) recently 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.
On September 20, 2013, the SEC alleged 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 that were opened with people facing imminent death, and who were concerned about affording the high cost of a funeral. This father-son duo 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. The SEC’s complaint charged the Staples with violating various provisions of the securities laws and, because public stoning is no longer permitted, sought disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions.
Earlier this year, Benjamin Staples was a witness in the trial of bookie Brett Parker, who was convicted of killing his wife, Tammy Jo Parker, and a business partner, Bryan Capnerhurst. Staples testified at the trial in which Parker was convicted, that he, Staples, had carried on an intimate affair with Tammy Jo Parker on whom Brett Parker had taken out a sizeable insurance policy, according to a local South Carolina press report. Staples was also interviewed on NBC’s “Dateline,” which ran a national true-crime television show on Parker’s scheme to kill his wife and Capnerhurst.
According to the SEC’s complaint filed in federal court in Columbia, S.C., once a joint account was opened and the Staples had sole control, Staples 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 Staples 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.
According to the SEC’s complaint, the Staples 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 Staples 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 Staples later purchased.
The SEC alleges that after a terminally ill participant died, the Staples 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 Staples falsely represented that the deceased participant was an “owner” of the bonds. The Staples 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.