Viatical Settlements are always ranked by the North American Securities Administrators Association as one of the top ten investment scams of all times.
The securities regulators of the various states seem to also agree, and since 1994, have entered no less than 191 cease and desist orders or enforcement proceedings concerning the sale of viatical settlements.
Viatical settlements allow investors to invest in another person's life insurance policy. 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. When the seller dies, you collect the death benefit.
The Investors return depends upon the seller's life expectancy and the actual date he or she dies. If the seller dies before the estimated life expectancy, you may receive a higher return. But if the seller lives longer than expected, your return will be lower. You can even lose part of your principal investment if the person lives long enough so that you have to pay additional premiums to maintain the policy.
The Securities and Exchange Commission is investigating Life Partners Holdings Inc., a Waco, Texas, company that has arranged for investors to buy several billion dollars of life-insurance policies from their original owners, according to four people who have been contacted recently by the agency.
As part of its probe, the SEC's enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals, these people say. The estimates—projections of how long the people might have to live—are a crucial part of the investment equation.
The shorter an insured person's expected life span, the more Life Partners generally can charge for that policy, because investors expect a faster payout. If the death comes later than anticipated, not only is the policy payout delayed, but investors who buy policies or parts of them must continue to pay premium bills while they wait to collect on a death benefit.
Questions about the accuracy of Life Partners' life-expectancy estimates were the focus of a December Page One article in The Wall Street Journal. The article reported that many of the insured people are living well beyond the company's estimates, suggesting that the 10% or 15% yearly returns promoted to Life Partners' investor clients may prove elusive for many.
Life Partners says it has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since its 1991 founding. Life Partners extracts often-hefty fees in the deals, averaging $308,000 apiece for the 201 policies sold in its most recent fiscal year. Investors often buy pieces of multiple policies.
Some states have claimed Life Partners' fractional-policy sales make it subject to state securities law. Life Partners in 2008 settled a fraud suit filed by Colorado regulators, agreeing to repurchase policies from many investors in that state. The settlement came with no finding of fraud.
Based on data Life Partners filed with the Texas Department of Insurance, the Wall Street Journal found that, for policies sold from 2002 through 2005, insured people outlived Life Partners' projections about 90% of the time. Many of those policies were on HIV-positive people; Life Partners since 2004 mostly has sold policies on older people.
According to a press release dated February 03, 2011, a class action complaint was filed against Life Partners Holdings, Inc. alleging that the company issued materially false and misleading statements regarding the Company's business and financial results.
Life Partners Holdings is also alleged to have failed to disclose to investors that it was shortening the estimated life expectancies of insured individuals. As a result, the Company was making the policies covering these individuals more attractive to potential investors, as the potential "payout" from the policies maturing (when the insureds died) would occur in a shorter period of time.
Had the Company used accurate and appropriate estimated life spans, Life Partners Holdings would not have been able to sell as many policies to investors and earn the additional and increased transaction fees for these insurance policies.
Life Partners Holdings, Inc. sold these investments through various brokerage firms.
If you have lost money as a result of an investment in Life Partners Holdings, Inc. you may have a claim against your stockbroker or investment professional for the failure to perform due diligence in connection with the sale of these securities.
In order to pursue these individual claims against your stockbroker or investment professional in connection with the sale of viatical settlements sold by Life Partners Holdings, you should contact a lawyer experienced in securities arbitration matters.
Our practice is limited to claims against stockbrokers and investment professionals for fraud in connection with the sale of securities, the sale of unsuitable securities, failure to perform due diligence, breach of fiduciary duty, negligence, selling away, and the failure to supervise. If you have been the victim of investment fraud, contact us for a free evaluation of your claim. All matters are accepted on a contingent fee basis. Please call us toll free at (877) SEC-ATTY, or for more information visit us at www.securitiesarbitrations.com.
Nicholas J. Guiliano, Esquire, The Guiliano Law Firm, P.C.