Florida Man Asks 11th Circuit to Overturn Ponzi Conviction

(CN) - The attorney for a South Florida man convicted of carrying out a billion dollar life insurance and investment scam, asked the 11th Circuit to void the sentence because, he said, his client wasn't dishonest, merely too trusting.

Anthony Livoti Jr. was sentenced to a decade in prison in April 2014 after he was found guilty of conspiracy, mail and wire fraud and money laundering.

Prior to his arrest, Livoti acted as an independent "premium trustee" for Mutual Benefits Corp, a firm founded by brothers Joel Steinger and Steven Steiner in 1996.

Livoti was also the designated “owner” of many of the life insurance policies purchased by the company.

According to court documents, Mutual Benefits Corp. sold over $1 billion worth of life insurance policies to over 30,000 seniors and terminally ill individuals over a 10 year period.

But the government said the enterprise was little more than a Ponzi scheme in which Livoti and other MBC official conspired to misappropriate funds for the personal use and benefit.

The indictment lodged against Livoti said he controlled the company’s bank accounts, and pooled policyholders' and investors money in those accounts.

“By pooling all of the money together, MBC paid premiums on older policies by using premium money set aside for newer policies, creating a Ponzi scheme,” the indictment says.

In the end, the government said, policyholders and investors lost about $837 million.

On Tuesday, attorney Richard Klugh of Miami, Fla., sought to portray his client in an entirely different light.

Standing before the three-judge panel, Klugh argued Livoti’s main responsibilities at MBC were to make sure that the policies stayed current, and that payments went out to investors.

“He was not involved in the business part of the company,” Klugh said.

Although he acknowledged that funds raised from selling new policies was used to pay older policies, he said the situation "was a business problem, not a fraud,” and that the practice was entirely unknown to his client.

But U.S. Circuit Judge William Pryor said that as a trustee, Livoti must have known about the premium deficiency problem.

“He was not acting as a neutral trustee when he knew that there was no money to pay the premiums,” Pryor said.

Assistant U.S. Attorney Aileen Cannon, who presented the argument for the United States, said that Livoti acted as the “facilitator of the ponzi scheme,” and that even though he knew that the investors’ funds were being mismanaged, he continued to tell them that their investments were “safe.”

“He violated his obligations as trustee and fiduciary,” said Cannon.

Cannon also argued that during one of MBC’s sales seminars in 2003, Livoti made false representations to investors.

Klugh countered by saying his client not selling policies, and that the business problem he'd described earlier developed over time.

But Pryor was unconvinced.

“He’s told that there is a premium deficiency problem, and he tells investors that there’s plenty of money flowing,” the judge said.

Prosecutors said Livoti knew that MBC acquired a number of fraudulent life insurance policies, and that they concealed from investors that many of the policies had provisions that restricted the transfer of policies to “gift assignments,” meaning that the policy could only be transferred as a gift and that it could not be sold.

“Livoti signed documents falsely stating that he had received these policies as a gift and as a friend of the insured,” the indictment says.

“My understanding of the transfers of the policies was that any formal gift provision was determined not to bar transferee rights, and that Livoti was successful in challenging any dispute of this by insurers. Certainly, the investors were not adversely affected, and Livoti’s position on transferor/transferee rights was correct and prevailed,” Klugh said.

The indictment also claims that Livoti  was involved with the false representations made in connection with the life expectancies of the policies where investors were told that 80 percent of all MBC policies matured at or before the predicted time.

Addressing these matters Tuesday, Klugh said, "Every now and then a person might outlive the policy, that’s normal …”

The panel did not indicate when they will render a decision in the case. Klugh expects the court to issue its decision in about three months.

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