PACIFIC ISLANDS REPORT
Development Program/East-West Center
With Support From Center for Pacific Islands Studies/University of Hawaii
COURT JESTER'S RISKY GAMBLE OVER DEATH DATES FAILS TO WIN MILLIONS FOR TONGA’S TRUST FUND
By Michael Field
AUCKLAND, New Zealand (October 22, 2001 – Agence France-Presse)---Tonga lost millions of dollars in a trust fund scandal run by the kingdom's court jester by gambling on the early deaths of 16 Americans, according to revelations by a magazine and a securities watchdog.
Bimonthly Matangi Tonga magazine received here Monday has revealed that 20 million U.S. dollars were lost in the so-called viatical industry, which bets on the early deaths of terminally ill patients.
King Taufa‘ahau Tupou IV ignored the public warnings of the United States Securities and Exchange Commission (SEC) and the Nevada Attorney General's Office against such investments.
Tonga made 30.7 million dollars in the 1980s and early 90s selling citizenship and passports to mainly Chinese residents in Hong Kong. The money was put into the Bank of America and controlled by the Tonga Trust Fund (TFF), whose trustees included Attorney General Tevita Tupou, then Prime Minister Baron Vaea and Finance Minister Tutoatasi Fakafanua.
A bank employee, Jesse Bogdonoff, convinced TTF to let him manage the account and invested much of it in U.S. Government Treasury Notes, returning 7.75 percent. Matangi Tonga said Bogdonoff was paid a fee of 250,000 dollars, and the king issued a decree naming him the world's only official court jester.
Matangi Tonga said in July 1999 Bogdonoff told Tonga the money would run out by 2012. He recommended investing most of the remainder, 20 million dollars, in a promissory note issued by a Nevada viaticals company, promising a 30 percent return over two years.
Tevita Tupou, last month forced into retirement along with Fakafanua by Regent Princess Pilolevu Tuita, has revealed he and Vaea were not at the Privy Council meeting that decided to move the money.
The king chairs the council, which now appears to have moved the money in violation of the act setting up the trust; it was retrospectively legalized three months later by the royal controlled Parliament.
In Tongan terms it was a big gamble, in effect buying the life insurance policies of 16 terminally ill Americans.
Acting Prime Minister Clive Edwards last month told Parliament the 20 million dollars is missing, a huge amount in a kingdom whose annual government budget is 86 million pa‘anga (38 million dollars).
The SEC has had a long-standing warning on viatical settlements.
"With a viatical settlement, you purchase the policy (or part of it) at a price that is less than the death benefit of the policy," the SEC warning says.
When the seller dies the investor collects the death benefit. The return depends on the date of death; if the seller dies sooner the return is higher; if the seller lives long the investor loses part, or all, of the investment.
"Viatical settlements can be risky investments. For these reasons, you should exercise caution and thoroughly investigate before you consider investing in viatical settlement."
It is an unregulated business in Nevada.
Just a month before Tonga made its investment the Nevada office of the attorney general issued a public notice warning of "two new investment scams." One was "investment seminars" and the other viaticals.
Attorney General Frankie Sue Del Papa said investors have lost more than 400 million dollars.
"Although many brokers operate legally, the industry is ripe for fraud. In some cases, the policyholder is not really dying, or they do not even exist. In other cases, the viatical company promises big returns of 25 percent or more to investors, but never has the insurance policies to back that claim up."
Matangi Tonga revealed Bogdonoff and Millennium Asset Management Inc. (MAM) of Nevada told Tonga they had 55 million dollars in life insurance policies held in a Minneapolis bank. They said they would honor the note in June 2001, but now Bogdonoff says he was "deliberately misled" over the value of the insurance contracts.
MAM was incorporated on March 25, 1999 and dissolved 26 days later.
To complete the mystery, Matangi Tonga reported that Tongan officials cannot find the promissory note -- even if it is worth nothing.
New Zealand/South Pacific Correspondent
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