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On money

Don't be duped by bogus ads for CDs

By HELEN HUNTLEY
Published February 5, 2006

Investment ads touting CD yields you can't get from a bank are one of my pet peeves.

The ads technically are correct because the companies will open a bank CD for you if you insist, chipping in enough of their cash to bring the yield up to what is advertised. It looks like a great deal for investors, but it isn't.

The ads are bait designed to lure income-hungry retirees in for a sales pitch. Instead of a CD, many end up with an investment that's subpar at best and fraudulent at worst.

John and Leanilda Wozniak learned the hard way. The Naples couple fell for a CD ad run in 2002 by Clearwater-based First Liberty Group, formerly one of the largest promoters of these dubious ads.

Once they were sucked in, the Wozniaks invested $250,000 in viaticals, fractional interests in life insurance policies on people who supposedly were near death. Unfortunately for them, the viatical business is rife with fraud.

They bought policies brokered by Mutual Benefits Corp., a Fort Lauderdale company state regulators shut down in 2004, saying it was a $1-billion investment fraud. The company is in receivership and most investors don't know how much they'll recover. First Liberty, now in bankruptcy, was Mutual Benefits' top agent.

The Wozniaks got a measure of satisfaction last month when arbitrators for the National Association of Securities Dealers ordered Charles Keith Byington, First Liberty Group's president, to pay them their money back with interest, about $298,000.

The Wozniaks argued that Byington misrepresented the investments. They won, but the victory isn't complete until they collect. Byington's lawyer, Francis Curran, declined comment on the case.

Nicholas Taldone, the Clearwater lawyer who represented the Wozniaks, said he wishes the investments had been sold through big brokerages so investors would have a better chance of recouping their losses. Although the big brokerages have made their share of mistakes, they were smart enough to stay out of the viatical business.

First Liberty Group was an insurance agency, not a brokerage, and apparently escaped regulatory scrutiny, Taldone said. Byington was registered as a broker through the now-defunct NowTrade and more recently with Vestpoint Securities, but dropped his registration last month.

Mutual Benefits' receiver is distributing death benefits to investors when the insured person dies. But many of the insured were healthier than Mutual Benefits represented and are living. The receiver has notified investors they have to decide by March 1 whether they want to put up more money to pay premiums to keep policies in force or have the policies liquidated. If the policies can't be sold, they will be surrendered to the insurance company. That's a tough spot for investors to be in.

These days CD ads are being used to sell poor-quality annuities with extended surrender penalties. My advice: Don't take the bait. Get your CDs at the bank.

I live with a domestic partner of many years and we commingle all our finances. We filed separate tax returns but merged and split expenses like charity, business expenses and miscellaneous deductions. Now we are being audited and they are asking for a separation of the expenses, a nearly impossible task. Are we allowed to mingle our expenses and split them?

You cannot simply decide to pool expenses and share deductions, just as you cannot simply decide to pool income and divide it between two returns. There needs to be a legal basis for your reporting.

If you are in business together, you can share expenses by setting up a partnership or S corporation. If your real estate is in both names, you can share the mortgage interest and real estate deductions. You can take turns writing checks to charity.

Since you are having a tough time separating expenses retroactively, you may need to hire an accountant or enrolled agent to help you with this audit.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to hhuntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified February 3, 2006, 17:45:03]