Two men were each sentenced to 10 years in prison Wednesday in Austin, Texas, for charges related to life settlement fraud.
Howard Glen Judah, 82, of Houston, and Gregory F. Jablonski, 62, of Castle Rock, Colo., were each sentenced to 10 years in prison after pleading guilty last November to one count each of securities fraud and selling an unregistered security.
They both pleaded guilty in Harris County State District Court Nov. 26 to the charges and agreed to the 10-year sentence.
Judah was the CEO of National Life Settlements LLC, a Houston company that allegedly sold unregistered securities that were supposedly backed by the proceeds from the death benefits of life insurance policies.
Jablonski was a principal in the company.
National Life Settlements were charged by state officials after an undercover Texas Securities Board investigation.
The probe found that they falsely promised investors that its investments would pay a steady return of 8 percent to 10 percent a year through promissory notes backed by death benefits.
The company solicited money from retired and active state employees and teachers; millions of dollars were rolled out of retirement plans and into NLS investments, according to state Securities Board officials.
The probe led to a civil action that forced NLS into receivership in 2009. According to state Securities Board officials, investors received 69 percent of their money back as a result of the receivership proceedings. The investigation led to the indictments against Judah and Jablonski.
They were indicted in 2010.
According to officials of the state Securities Board, NLS was able to ramp up operations quickly by using insurance agents to sell its products.
Evidence in the civil case against NLS showed that the company paid more than $4 million in commissions to insurance agents, many of whom were not licensed as securities dealers.
The court-appointed receiver overseeing NLS testified that the corporation operated as a Ponzi scheme, paying new investors with money from earlier ones, Securities Board officials said.
Judah and Jablonski failed to acquire the life insurance policies needed to pay investors. The pair also falsely told investors that NLS was a large, national provider of life settlements and that NLS had received billions of dollars from the Federal Reserve, state officials said.
State Securities Board officials said their investigation determined that before forming NLS, Judah, of Houston, was a three-time federally convicted felon, including a 1998 conviction in U.S. District Court for the Southern District of New York.
He was convicted of conspiracy to commit wire fraud, sentenced to two years, eight months in prison and ordered to pay $3.5 million in restitution. Judah and his co-conspirator promised investors high rates of returns from non-existent “prime bank guarantees.”
Jablonski was a principal of an Internet networking company that filed for bankruptcy protection in 2007, state officials said.