Executives helped terminally ill get life insurance fraudulentl

LEXINGTON, Ky. -- A company that pays terminally ill people for their life insurance policies and three of its executives have been convicted of helping clients get insured by concealing their illnesses.

Prosecutors said Kelco Inc. executives encouraged or knew about the fraud, including cases in which terminally ill people substituted healthy blood for their own to obtain policies.

A federal jury Friday convicted Kelco, sister company Genesis Viatical, founder and chief executive Stephen Keller and vice president of sales Grant Sutherlin of fraud, conspiracy and money laundering. Keith Drach, Lexington-based Kelco's chief financial officer, was convicted of conspiracy.

The individuals could be sentenced to up to 20 years in prison, and the companies could be ordered to pay up to $30 million in fines and restitution.

Assistant U.S. Attorney Pat Molloy said Kelco once was the largest company specializing in sales of life insurance policies to third parties.

Kelco bought life insurance policies from terminally ill policyholders for a fraction of their value and sold the policies to investors, who paid the premiums and collected the benefit when the original policyholder died.

Prosecutors alleged Kelco helped falsify hundreds of policies. In January 2001, 16 people were indicted for selling falsified policies to the company.

At Kelco's trial, a former insurance agent testified that a company executive knew he swapped blood samples to hide applicants' illnesses, and a former Genesis Viatical regional manager said he knew many of the policies he forwarded to headquarters had been falsified.

Former Kelco employees testified that the company did not try to defraud insurance companies, and blamed the insurers for failing to fully investigate applicants.

Keller's attorney, Robert Tarun, said he was disappointed and plans to appeal.

"A lot of Kelco employees took the witness stand and emphasized that there was not a lot of regulation in this industry and that they thought what they were doing was legal," Tarun said.

Sutherlin's attorney declined to comment. Drach's attorney, James Shuffett, said, "We are just saddened by the verdict."

The three defendants remain free on bond. Sentencing was scheduled for June 20.

Kelco had more than 80 people on its payroll at its peak, but now has only a few employees aside from the three defendants, Molloy said.