Trade Partners, a Grand Rapids, Michigan, company, made money by buying rights to the life insurance benefits of terminally ill people at a deep discount, taking over premium payments and then waiting for a big pay-off when the original policyholders died. In exchange, the sick would get cash--sometimes around 40 percent of the death benefit--to take care of their final days.

Investors in Trade Partners were guaranteed a return, or so they thought. It was not to turn out that way: In May 2003, Trade Partners fell apart amid allegations of fraud and deceit. Before the collapse, founders Thomas J. Smith and Christine Zmudka--touting their community ties and the security of a Grand Rapids bank--were allegedly able to sell $212 million in investments to 3,400 people from West Michigan to South America. Now the FBI, the federal Securities and Exchange Commission, jilted creditors and investors, a court-appointed receiver and judges in Michigan and Texas have been left to sort through the financial carnage.

Among the most vocal critics is named plaintiff Forest Jenkins, a Houston, Texas, alarm company owner, who alleges that he invested $670,000 with Trade Partners. Jenkins alleges that he was particularly fooled by the company's insistence that investors' funds were secure in escrow accounts at the former Grand Bank, now part of Macatawa Bank. Though there really were escrow accounts, Trade Partners allegedly didn't fully fund the escrow accounts and the action alleges that the bank failed to ensure the company was doing so.

Thomas J. Smith filed for Chapter 13 personal bankruptcy protection in May 2003, listing more than 1,000 unsecured creditors, most of whom appear to be Trade Partners customers. To pay off more than $742,620 in liabilities in his filing, Smith vowed to sell his family's $600,000 house, give up his GMC Yukon and quit his golf membership at Egypt Valley Country Club, among other strategies, according to documents filed in his bankruptcy.

While viatical investments are legal, the industry has been overrun by fraud. Criminal charges have been filed in other states against other companies pitching viatical settlements. Trade Partners itself was raided by the FBI in 2000 as part of a federal investigation into Kelco, Inc., a Lexington, Kentucky, company that supplied Trade Partners with viatical settlements. Kelco and three of its top executives were recently convicted of falsifying records when they knew terminally ill people fraudulently obtained life insurance policies. Trade Partners was never charged with wrongdoing in that case.

What made investors interested in such a strange investment? Allegedly, the rate of return depended on how soon the original policy holder died, but generally investors were told to expect a 12 to 14 percent return. The investments were allegedly popular because Trade Partners marketed them for their low risks and yields higher than bank savings accounts, bonds or most stock investments. Also, company biographies allegedly touted Smith's pedigree as a former employee at a Fortune 500 company who was involved in his church, and Zmudka's experience as a finance and business executive involved in the Junior League of Grand Rapids and Juvenile Diabetes Research Foundation.

Allegedly, through a series of limited liability companies, Trade Partners owned millions of dollars worth of real estate, including a now-closed Ramada Inn in Orlando, Florida, a hotel in Branson, Missouri, and a luxury home dubbed "Meandering Creek." As of July 2003, Thomas Smith allegedly still lived in the luxury home under a $1,500-a-month lease agreement with the court receiver.