A PONZI QUANDARY: Convicted And Jailed, 61-Year-Old Schemer May Have Enough Life Insurance To Make Victims Whole. Case May Pose Unique Challenges To Court-Appointed Receiver And Victims Of William Huber’s Massive Fraud

EDITOR’S NOTE: The Ponzi world is infamous for serving up long-term, dark skies and odd stories. Here is a new weather report and entry for the Ponzi Strange-O-Meter.

By some accounts, the best definition of financial success is written by CPAs on the Last Great Day of a client’s life. When the final beans are counted, if the bean-counters determineĀ  that the newly deceased had more cash and cash-convertibles than the sum of his debts and insurance holdings, it means that the departed was worth more money alive than dead.

This will not be the case for convicted swindler William Huber — not that catastrophic insolvency that engulfs both perpetrators and many of their individual victims is news in Ponzi Land.

What is news is that Huber, who fleeced 300 investors out of $15 million in a multistate scheme known as Hubadex, potentially has enough life insurance to make victims largely whole and perhaps even pay the costs of unraveling the litigation mess he created in 2009.

But the money is not available now and Huber is still a relatively young man. Although the victims’ group as a whole possibly could gain the highest number of restitution dollars by waiting years for him to die and then recovering their losses by splitting pro rata shares of an insurance cashout, waiting may not be the best option from the standpoint of both fairness to individual victims and judicial economy.

What to do in the here and now — and how best to wrap up Huber’s bizarre Ponzi affair — are questions to which the court-appointed receiver in the case has been seeking answers since the fall of 2009. So far, receiver Kevin Duff has rounded up more than $6.5 million by selling Ponzi properties in California and Florida, filing clawback actions and marshaling other assets while working on a victims’ distribution plan.

Huber, 61, of La Jolla, Calif., pleaded guilty in Illinois last year and was sentenced to 20 years in federal prison. The SEC also filed an action against Huber, and the case is being unraveled by Duff, who has made clawback demands against 39 individuals and sued six winners.

Duff, according to court filings, advised a federal judge that Huber had life-insurance policies that potentially would pay $19.25 million upon the fraudster’s death, depending on variables. The receivership estate has been paying the premiums on the polices while it seeks guidance and comes up with a final plan on how best to proceed. With the cooperation of Huber’s family, Duff has arranged to make the receivership estate and Huber’s former company the beneficiaries of the policies.

The problem, however, is that paying the costly premiums indefinitely may create a drain on the receivership estate while providing no near-term benefit and keeping the case on the taxpayer-funded court docket for years. And what would happen if future litigation created an even greater strain on the estate?

Indeed, according to court filings, the still-intact insurance policies come with premiums that currently cost the estate nearly $92,000 a year. Huber had four polices: one for $12 million, one for $5 million, one for $1.25 million and one for $1 million. Some or all of them may have to go.

There also is no guarantee that the premiums will not increase. Hikes could create an even-greater strain on the receivership estate. And arranging a life-settlement offer beneficial to the estate has proven difficult, according to court filings.

As things stand — assuming the premiums remain the same, the receivership remains intact, no beneficial life-settlement offer is made, no challenges are filed by the insurance carriers and Huber lives for another 20 years — the cost of paying for the insurance could exceed $1.84 million. An initial distribution to the victims could be lower because the $6.5 million estate potentially would have to set aside a large sum just to pay the premiums — and the estate would have to remain intact under court supervision indefinitely

In a report to a federal judge in February 2010, Duff noted the presence of the policies and their costs. In May 2010, Duff noted that no life-settlement offers had been forthcoming. An October 2010 report noted largely the same thing. So did a report Duff filed with the court in February 2011.

When the scheme was collapsing, according to the SEC, Huber advised his investors that he was no Bernard Madoff. But an accounting showed that he was a mini-Madoff who claimed to have $40 million under management when he had only $3 million, according to court records.

Huber later blamed the SEC for his inability to honor redemption requests, but the real reason investors were denied access to their money was that Huber had systematically defrauded them while showing them fictitious paper profits, according to court filings.

At least $1.7 million went to pay for Huber’s personal expenses, including the acquisition and maintenance of Ponzi properties. In fact, the SEC said, he’d spent more than $800,000 on his California Ponzi palace, nearly $100,000 to keep his Florida condo in Naples in fine fettle and $331,000 on life-insurance premiums.

“Huber recently sent letters and e-mail messages to certain investors telling them that they cannot add or withdraw funds from their accounts (even though the private placement memoranda allow them to do so at the end of each quarter), because Hubadex is undergoing an ‘audit and review by the SEC,'” the SEC said in September 2009. “In reality, Huber and Hubadex cannot meet all of the possible redemption requests from investors because the actual Fund balances are less than 10% of what Huber and Hubadex have represented to investors in their detailed monthly account statements.”

Huber bought the Ponzi properties in the name of Hubadex, the SEC said, noting that he had been sanctioned and fined $50,000 by the state of Illinois in 2005 for his business practices.

“On December 17, 2008, one week after Bernard Madoff was arrested for perpetrating a massive Ponzi scheme, Huber sent an e-mail message to investors reassuring them that the Funds had nothing in common with Madoffs scheme,” the SEC said in September 2009. “In the message, Huber misled investors about the Symmetry Fund’s non-existent hedge fund investments, claiming ‘[w]e just received the last of the assurances from Symmetry’s sub-funds which confirms the Symmetry Fund, L.P. has no exposure whatsoever to Bernard Madoffs firm or investment funds.'”

“Huber also lied to investors about the amounts of liquid assets in the Quarter Funds and Trimester Fund, telling them that the total assets in each Fund were ‘equal to the value of the Funds’ limited partnership interests less any incentive management fee,’ when in reality the Funds held far less money than Huber and Hubadex claimed. Huber further lied about the success of the Funds and his own honesty, claiming that the enormity of Madoffs crime also damages the credibility of ‘honest operators of successful alternative investment funds, such as ours, in the process and without foundation … We wonder if our funds were down 30 to 50% this year, would we be subject to the same Madoff cloud of misgiving?'”

Huber no longer has to wonder about the Madoff cloud. Indeed, he created his own cloud — and the receivership estate now is trying to find the best way to make the dark Ponzi skies that enveloped his victims at least partly sunny.

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2 Responses to “A PONZI QUANDARY: Convicted And Jailed, 61-Year-Old Schemer May Have Enough Life Insurance To Make Victims Whole. Case May Pose Unique Challenges To Court-Appointed Receiver And Victims Of William Huber’s Massive Fraud”

  1. I wonder if Saint Uncle Andy has this much life insurance? Perhaps the former members of ASD could get their money back out of that? It’s sad to see people from a generation know for honesty and trust stooping to such egregious behavior.

    Perhaps jail is the best place for these crooks.

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  2. Perhaps the interest in the policies could be sold to an investor willing to take over the payments? Securitize it and sell units, maybe even offer units (along with a corresponding premiums) to the victims in a true long term investment?
    One way or another there is a value here, and I would think that the receiver can’t legally just let it go, he has a fiduciary responsibility. It’ll be interesting how this plays out.

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