(NEW YORK) -- After six years of waiting, hundreds of Northern Californians -- victims of a $25 million investment scam perpetrated 10 years ago -- have yet to see a dime in restitution. They lost their money making bets on when the holders of life insurance policies would die.
Their only comfort, so far, is that the first sentences in the case are at last being handed down.
On Oct. 25, Robert Koppel of Roseville, Calif., was sentenced to three years' probation, after having first pleaded guilty to securities fraud, according to court documents. His sentence follows that of Mark Wolok, a Michigan businessman in the scam, who last year pleaded guilty to securities fraud and was sentenced to five years in prison, according to the United States Attorney's Office for the Eastern District of California.
The fraudulent scheme they and their confederates perpetrated involved a morbid -- but legitimate -- financial product called a viatical.
According to the government's indictment, legitimate viaticals first came into being during the AIDS epidemic, as a means for holders of life insurance policies to realize the cash benefit of their policies before their death.
Under such arrangements, the holder of a policy, known as the viator, sells his interest in it to a buyer for cash. The buyer then re-sells it, in whole or in part, to investors. Their return depends on how long the viator lives -- the sooner he dies, the greater their return.
The life expectancy of the viator is determined by a medical doctor. If the viator does not die by the predicted date, the investor gets no return.
In the Northern California case, a Redding company called Secure Investment Services (SIS) sold viaticals under several false pretenses, according to the U.S. Attorney's Office and the Securities and Exchange Commission.
First, a government attorney familiar with the case tells ABC News, the policy holders had not been examined by a real doctor: "A lot of those forecasts as to life expectancy were just plain off. The holders lived longer than predicted."
Second, he says, buyers were told the their investments could not miss, because each policy was backed by a bond that would pay its entire death benefit, even if the insured failed to die by the medically-predicted date. The company issuing those bonds, he says, "never really existed."
The SEC and the U.S. Attorney's Office cracked down six years ago and froze SIC's assets, but by then, according to a document filed by the court-appointed receiver, most of the investors' money was already gone, used in part to prop up the policies of viators who lived longer than predicted.
Because money from new investors was used to prop up the policies bought by old investors, the government branded the whole enterprise a Ponzi scheme.
By the time SIC's assets were seized in 2007, the company had only $440,000 in cash left.
The lawyer familiar with the case says that the receiver has had only limited success selling the remaining policies, in part because after 2007 the economy tanked, and potential buyers for these pools of policies disappeared.
The Sacramento Bee reports that John Edlund, a Northern California resident in his mid-70s who invested $50,000 with SIC, is one of the beleaguered buyers left holding the bag.
"I haven't seen a dime, and I'm not sure I ever will," he told the paper.
A call to him from ABC News requesting further comment was not returned.
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