SAN DIEGO -- A San Diego man is at the center of an investment fraud investigation.

In March, investigators with the California Department of Insurance, the San Diego County District Attorney's Office, and the California Department of Corporations served search warrants at the corporate offices of C. Palmieri Enterprises, Inc.

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Very Unusual Form Of Investment

Investigators say owner Carmen J. Palmieri is suspected of fraudulent sales of viatical investment contracts through his San Diego company National Medical Funding.

Viatical investments involve terminally ill patients who sell their life insurance policies for less than face value. The investor agrees to pay future premiums and collects the policy's full benefit when the patient dies.

In court documents unsealed by the Troubleshooter, state investigators estimate more than 400 people invested close to $8 million with Palmieri's company.

That includes investors like Dave Brundage, a legally blind Arizona man who rolled his entire $600,000 pension into a viatical settlement investment with Palmieri's company.

"All of my 401K money was invested in this. I'm wiped out, it's everything I had," Brundage said.

Investors said they were promised a 14 percent return and thought they were helping terminally ill cancer patients. But the company did not pay off as promised.

Investors told the Troubleshooter that they received excuses and bounced checks from Palmieri. They also found some of the viaticals were never actually purchased.

"We check with the various insurance companies which were supposed to have had issued the policy. We had the policy number, and it didn't exist," Norma Norriss said.

Investors wrote their checks to an escrow company called Trust Management Services. Although the company has a San Francisco address, the Troubleshooter discovered that the location is really a Mail Boxes Etc. State investigators said the company's 415 area code phone number actually rings to Palmieri's San Diego office.

Where did the money go?

Former U.S. Attorney Chuck LaBella was appointed as receiver to oversee Palmieri's assets that were frozen by the court.

"Our preliminary investigation reveals that the money probably went into real estate, he (Palmieri) was funding a real estate empire," LaBella said.

LaBella is working to preserve and then liquidate Palmieri's real estate assets to pay back investors. But the Troubleshooter has confirmed that even after the state took action against Palmieri, he was able to travel to Russia to adopt a child -- a development that concerns investors and investigators.

"It's a mystery to us," LeBella said. "Before he left, all his money was frozen by the court. At some point he's going to have to explain where that money came from".

"What I'm really worried about is that Mr. C.J. Palmieri will use our money to pay fines to stay out of jail," investor Jack Odom said.

The Troubleshooter has learned an arrest warrant has been issued in Arizona for Palmieri for writing bad checks. A criminal investigation is underway in our state.

Palmieri's attorney William Smelko would not comment on the fraud allegation or his client's recent trip to Russia.

As this case shows, viatical investments can be very risky. The California Department of Corporations calls viaticals one of the top 10 investments scams to avoid.

The California Department of Insurance urges all investors who purchased a viatical contract with National Medical Funding, or C.J. Palmieri, to contact the Criminal Investigations Branch in San Diego at (619) 525-4092.