The SEC has provided a Wells notice regarding its intention to file civil charges, according to publicly traded life settlements company, Life Partners Holdings, Inc. Life Partners Holdings, Inc. is the parent company of Life Partners, Inc., “one of the oldest and largest life settlement companies in the United States” according to its website.
Life Partners and other life settlement companies purchase “unwanted” life insurance policies from the owners of the policies who may or may not be the insured. The purchasing company then proceeds to re-sell fractional interests in the policies to third parties. The “Life Settlement Provider” purchases the policy for an amount below the net benefit of the policy. Since the third-party purchasers of the interests, through a Life Settlement Broker, are in part responsible for the ongoing premiums on the policy, the amount of time between the purchase of the fractional interest and the death of the insured is a critical element in the investors risk/return evaluation. According to The Wall Street Journal, the Wells notice issued to Life Partners provides notice of impending charges against the company and two top executives related to these critical “life-expectancy estimates.”
Allegations of fraud related to life expectancy estimates received public attention almost a decade ago in connection with Mutual Benefits Corporation in Florida1. In that case, a doctor providing medical reports in support of life-expectancy estimates was indicted and pled guilty to securities fraud in 2007 and the company was ultimately placed under receivership. The SEC took action as well, and federal litigation followed in 2005 which was in part centered on whether or not viaticals or life settlements qualified as “investment contracts” and were therefore securities under federal securities laws.
In 2009, this law firm procured a settlement on behalf of an investor in a suit filed against a life settlement broker/investment advisor that made multiple grossly unsuitable recommendations to our client for the purchase of hundreds of thousands of dollars of life settlements. The value of the investments were based primarily upon the life-expectancy of insured persons who proved to be nearly immortal, despite promises of near-death status at the time of the viatical purchases. The Missouri Securities Division had previously taken preliminary action, albeit belatedly, against both Mutual Benefits Corporation (in 2004) and our civil defendant (investor complaint received in 2004, Cease and Desist Order issued in the fall of 2006), but both the Securities Division and the Missouri Department of Insurance failed to garner a remedy for the investors or take action against the investment advisors and broker-dealers that failed to supervise the representative/life settlement broker/insurance salesman. In sum, it seems the more things change, the more they stay the same!
1The State of Florida also filed a criminal charge in 2001.