The Securities and Exchange Commission (SEC) has said a father and son from South Carolina were charged Friday with profiting more than $6.5 million from a scam that resulted in making money off of the terminally ill. Patients who were dying became accessories to a scheme that defrauded banks and bond issuers. The two men allegedly took advantage of a feature that some corporate bonds refer to as “survivor’s options,” according to the SEC by purposely targeting people they knew were nearing death.
A survivor’s option would require the bond issuer to pay the entire principal amount of the bond before maturity if the bond owner dies. The alleged scheme, according to the SEC, worked like this – the two men would find people who were terminally ill and nearing death. They would target people who didn’t have much money and were considered about the ability to afford their funerals. In exchange, the two men offered to cover funeral expenses of the terminally ill if they would open joint brokerage account with them. While setting up the accounts, the men required the dying people to relinquish any interest in ownership. At that point, the two men purchased discounted corporate bonds through the accounts, according to the SEC allegations.
The men have been identified as Benjamin S. Staples, 62, and his son, Benjamin O. Staples, 28, both of Lexington, S.C. According to the SEC, after the joint account holders died, the two men would write to the brokerage firms and ask them to redeem the discounted bonds at the full value in accordance to the survivor’s option. The profits earned became the difference “between the discounted price of the bonds they purchased and the full principal amount they obtained when redeeming the bonds early,” the SEC said.
The allegations indicate the Staples recruited 44 terminally ill people and purchased $26.5 million in bonds which resulted in them earning $6.5 million in profits.
“The Stapleses deceived brokerage firms and bond issuers by casting themselves as survivors of a joint ownership situation when the deceased had no legal ties to the bonds at all,” Kenneth Israel, director of the SEC’s Salt Lake regional office, said in a statement.
The Staples allegedly owned an accounting firm located in Lexington, SC, with at least one of the two men being a certified public accountant. Media outlets have indicated the two men have obtained separate attorneys, but neither attorney has responded to the request for comments regarding the charges and the allegations against the pair.
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