One must wonder if Life Partners Holdings Inc., a Waco, Texas company that has arranged sales of several billion dollars of life-insurance policies to investors through broker-dealers and investment advisors is your life partner or death partner. Yes, they partner in life with ill life individuals needing immediate cash to take care of themselves, but they are death partners with many investors who expected to profit from these viatical settlement contracts many years ago.
Since investors are on the hook for premium payments until the insured dies, a short mortality estimate would result in the investor anticipating less cost and a higher return on the investment. The company's mortality estimates suggested annual returns of 10% or 15%, which has not been the case. Investors have faced much higher costs and lower returns because Life Partner's mortality estimates were unrealistically short. Many of the insureds are living well beyond the company's estimates.
How did the company derive its mortality estimates, which are critical for investors, is the burning question? The company apparently derived its mortality estimates from a Reno, Nevada, physician, Dr. Cassidy, who provided his data to the United States Securities and Exchange Commission (SEC). Upon review, the SEC concluded Dr. Cassidy was using an "unrealistic" approach that tended to produce inaccurately short life expectancies.
Based on data Life Partners filed with the Texas Department of Insurance, for policies sold from 2002 through 2005, its insureds (many of whom were HIV positive) outlived the company's projections approximately 90% of the time.
Between January 2004 and July 2009, the SEC took legal action against 27 U.S. life-settlement funds and advisers, according to Leslie Scism and Larry Light in their Feb. 6, 2010 Wall Street Journal article, "Grim Risks of Reaping Death's Rewards." Life settlements are on the North American Securities Administrators Association's top-10 list of "investor traps." In 2008, Life Partners reportedly settled a fraud action filed by Colorado regulators, agreeing to repurchase policies sold to Colorado investors.
Life Partners appears to be doing better than its clients, who often buy pieces of multiple policies. The company has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since 1991, and it extracted fees averaging $308,000 per policy sold in its most recent fiscal year, according to the article. Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.
In sum, life settlements may benefit the sellers and promoters, but are a risky gamble that is unsuitable for most investors. Are you still holding a viatical settlement contract purchased through a broker from Life Partners or any other viatical settlement company? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against brokers who failed to do their due diligence and/or who made unsuitable recommendations of viatical settlement contracts when they sold these products to investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the The Law Offices of Rober Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at firstname.lastname@example.org for answers to any of your questions about this blog post and/or any related matter.