It’s 16 acres of beautiful desert property located at 504 W. Galvin in Desert Hills, with
horse corrals, modern barns, specialized grooming areas, two arenas, and a $1.95
million price tag.

On April 16, it also had men and women in blue windbreakers or blue T-shirts with
logos on the back reading FBI or IRS Special Agent.

The investigators, along with representatives of the Arizona Corporation Commission,
were there to look for evidence involving, according to FBI Agent Susan Herskovitz,
“the sale of unregistered securities.” The Bureau’s spokeswoman confirmed the
securities issue revolved around the sale of viaticals, contracts which are the sale of life
insurance policies of terminally ill policyholders to a third party.

Until March 24, Robert N. and Margaret Shearburn, along with Robert L. Shearburn,
owned interest in the property through Walking Horse Ranch L.L.C. and through a
Nevada corporation, FTIC. In a series of transactions recorded in Maricopa County in
late March 2003, the property was finally sold to William L. Nugent, of Kingman.
Nugent, owner of Nugent Construction in Kingman, did not return phone calls seeking
comment on the federal search of his property, or the purchase from Shearburn.
 

At the time this newspaper initially reported the search in the April 23rd edition, U.S.
Attorney John Tuchi would only say, “There was a federal search warrant into that
property, to look for evidence of whatever offense we are investigating.” Subsequent
investigation found a world of dealing in the death of others, alleged fraud, ruined lives,
and millions of dollars of investments lost. (See related story “Dealing in Death” on
Page 3.)

Robert N. Shearburn was the owner of Innovative Financial Services, with offices on
East Dunlap Road in Phoenix. His company was started in 1969. Years later, he got
into the sale of viaticals–the sale of life insurance policies of terminally ill policyholders to
a third-party investor. Such sales are made at a steeply discounted price, from which
brokers’ commissions are taken and expected future premium payments are subtracted
before the balance is paid to the policyholder.

When the seller of the life insurance contract dies, the buyer cashes-in for the full face
value of the policy. The investment program is designed to give the terminally ill access
to cash they need and provide a promised big return to the buyer.

Returns on viaticals sold by Shearburn may be hard to come by.

According to Desert Hills resident, Peter Maher, 60, the investment of $50,000 he put
into a viatical through Shearburn’s company is lost. A retired firefighter, Maher said he
purchased the viatical because, “You figure you’re doing a noble deed.”

Maher said he last spoke to Shearburn when the contract term matured and he wanted
to be paid. When Shearburn and his associates in California failed to get back to
Maher, the retired fireman did some investigation of his own. He said that Jackson
National Insurance Co. told him that there was no record of an insured by the name of
his viator (the name used to designate the terminally ill seller of an insurance policy).

Like many viatical investors, Maher was later to discover that the insured never got the
money that was supposed to purchase interest in an insurance policy. In fact, what
Maher says he found was an apparently deceptive program in San Francisco that
advertised for AIDS patients. The names of those patients were then sold out on the
viatical marketplace, some without any policies being issued and no money transferred
to the supposed beneficiary.

Shearburn has allegedly been tied to Carmen J. Palmieri, 52, former chief executive of
a California company that, according to reports, sold viaticals in what San Diego
10News reported was, “an elaborate and sophisticated scheme of fraud.”

Palmieri is being held in jail on 116 felony counts and a $2 million bond. He is accused
of bilking 120 senior citizens, mostly from Arizona, of over $10 million through the sale
of fraudulent viaticals. In April 2002, the State of California sued Shearburn, Palmieri,
and others in Maricopa County Superior Court to freeze some of the assets of Palmieri
Enterprises, Inc.
 

California wasn’t the only one to go after Shearburn. Dave Brundage, a legally blind
retiree in the West Valley, invested over $600,000 in viaticals through Shearburn’s
Phoenix-based company.

Like Maher, Brundage was attracted to the long track record of Innovative Financial
Services and their impressive offices. IFS moved from Arizona and established a
Nevada corporation, FTIC, in 2001.

“It was a family-owned business for 30 years,” Brundage said. “ They checked out with
the Better Business Bureau.”

It looks like most of the investment is lost, although Brundage is hoping to recoup 15
percent from the California efforts to liquidate Palmieri’s properties. So, Brundage is
focusing on getting Shearburn to repay the losses.

In fact, Brundage had been able to get court permission for a lien on the 504 W. Galvin
properties, but before he could get the necessary bonds, Shearburn had begun a series
of transactions that ended in the sale of the horse business to Nugent. Brundage said he
is hopeful that the joint task force investigation will lead to the arrest of Shearburn.

“I will track him down to the end of the world,” said Brundage in describing his attempt
to get repayment for his investments. Adding, “I am ruined by what he did.”
 

Alan Greenbaum, 42, claims he lost $140,000 invested in the Shearburn scheme.
Greenbaum expressed his concern about the lack of oversight of companies selling
viaticals, and the failure of agencies to act quickly on complaints of fraud. Like several
of the investors, he complained about inaction by then Attorney General Janet
Napolitano, who is now Governor of Arizona.

“I contacted Napolitano’s office in February of 2002, and they did nothing,”
Greenbaum said.

Maher concurred, saying Napolitano’s office called, asked a couple of questions and
then was not heard from again.

The scheme itself appears to be elaborate, even to the creation of a phony escrow
company called Trust Management Services. The business was located in a private
mailbox service in San Francisco, with a telephone line that actually rang to Palmieri’s
office in San Diego.

But, Palmieri’s company, National Medical Funding, just like Shearburn’s operation,
had no prior record of problems. And, according to filings by the California
Corporation Commission, the lack of prior records was for good reason.
 

In court documents filed against Palmieri and Shearburn on March 22, 2003, the
Commission describes National Medical Funding as a “fictitious company.” That
explains, perhaps, why other investors, like Maher, found that there were no insurance
policies for some of the viaticals they had purchased.

Shearburn once put out a fancy 14-page booklet on Viatical Financial Settlements. In
it, he quoted The Wall Street Journal, Newsweek, Money, and The New York Times
for support of the purchase of viaticals. He promoted the viaticals as “completely
secured” and “completely liquid,” and promised an “exceptionally high return,” noting
42 percent at 36-month maturity. His brochure claims the “principal and profit are
insured.” He even promoted a statement that the investment is “secured by $300,000
State Insurance Guarantee Fund.”

In the unlikely event the viator doesn’t die on time, Shearburn had an answer –
“returning the entire deposit in full” with 5 percent per year interest. All of this was for
promotion of ABS, American Benefit Services, Inc., a company that has since been tied
to viatical schemes in Texas and Florida. Investors report that Shearburn had promoted
those same claims in the sale of viaticals in Palmieri’s alleged scheme.

When investors started asking Shearburn for the promised buyout of matured viaticals,
they claim that they were delayed, passed on to Palmieri, and, in some instances, given
bad checks.
 

Sedona resident Jack Odom reported that he purchased two viaticals through
Shearburn. He was delayed, passed back and forth from Shearburn and Palmieri, and
given two checks as repayment. The bank refused to cash either check for insufficient
funds. Odom managed to recover just over $11,000 of his total $56,000 investment.
There are reports that 189 Arizona residents purchased Palmieri-associated viaticals,
with around 150 reportedly sold by Shearburn’s company.

California has directly alleged Shearburn with, “working in conjunction with Palmieri,
was engaged in activities with the intent to defraud investors with sales of viatical
investments.” The California Corporation Commission even alleges that Shearburn’s
company, Innovative Financial Services, received commissions on fraudulent sales of
viaticals in California done under the name of National Medical Funding.

The Commission is seeking a permanent injunction against Shearburn, and other
defendants, to bar the sale of securities and demands restitution for the buyers. It is also
asking for millions of dollars in fines against Shearburn. A preliminary injunction was
ordered to stop any other sales by Shearburn, and the other defendants. A receiver
was appointed to seize the assets of Palmieri. All defendants were ordered to not sell
or otherwise dispose of other property derived directly, or indirectly, from the sale of
the fraudulent viaticals.

Shearburn has not returned telephone calls for comment, and calls to his attorney in the
matter were not returned as of press time. But, they are not the only side not
commenting on this investigation.
 

The IRS, through its spokesman James McCormick, said little.

“This was a joint FBI, IRS, and Corporation Commission investigation. We can’t
release any information yet, but hope to be able to do so very soon,” McCormick said.
Tuchi, the US Attorney, also did not return telephone calls seeking additional comment.

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