Life Settlement or Viatical Fraud

Life settlements, or “viaticals,” involve the purchase of life insurance policies by third parties for more than the policy’s cash surrender value. The purchaser typically assumes premium payments until the insured dies and the policy matures. Essentially, the purchaser is betting on the life span of the insured—namely, that the monthly premiums to keep the policy active will be much lower than the ultimate value of the insured’s death benefit.

Life insurance policies have been sold on secondary markets for decades, ever since the Supreme Court ruled that a life insurance policy was an individual’s rightful property and, as such, could be sold to someone else. Viatical settlements experienced a sharp uptick in the 1980s, during the AIDS epidemic, when terminally ill individuals with mounting bills and shortened life expectancies sold off their life insurance to cover medical and other costs.

Recently, the viaticals market turned to a new group—senior citizens. With Wall Street involved, brokerage firms and other financial institutions now purchase life settlements in bulk and bundle them into multi-million-dollar portfolios. Insurance industry research firm Conning projects $51 billion worth of life settlement transactions to take place by 2028.

A decade ago, in a bulletin to investors, the Federal Deposit Insurance Corporation (FDIC) warned that the viatical industry was vulnerable to “Ponzi schemes, fraudulent life expectancy evaluations, inadequate premium reserves that increase investor costs, as well as broken promises of larger profit with minimal risk.”

Unfortunately, investors continue to be misled by life settlement-backed investments, lured by the idea of an investment that isn’t tied to market volatility, promises higher yields than traditional bond markets, and is backed by the trustworthy solvency of insurance companies.

But there are red flags to look out for. The industry is awash in intermediaries—brokers taking high fees and commissions and recommending speculative, illiquid life settlement-backed investment products to unsuspecting main street investors.

Silver Law Group recently filed suit against the Boca Raton-based company Seeman Holtz on behalf of investors who were sold promissory notes in Para Longevity, a fund that was purportedly collateralized by Seeman Holtz’s “portfolio of life insurance policies which would provide safety of principal and substantial returns,” according to the Complaint filed by Silver Law Group. The lawsuit claims that the investors were not paid scheduled interest payments nor returned their principal when the promissory notes matured. Moreover, Seeman Holtz was not licensed with state or federal securities regulators to sell these investments.

Silver Law Group is now investigating GWG Holdings, a Dallas-based financial services firm that used the life settlement market to create an alternative investment called L Bonds. According to a prospectus published by GWG, the bonds were sold with varying maturity terms ranging from 2 years to 7 years, with interest rates ranging from 5.50% to 8.50%. These bonds likely carry much higher risk than traditional corporate bonds and other conservative investments.

GWG sold billions of dollars’ worth of L Bonds over the past several years, and investors are now growing concerned about the status of these investments. In July 2020, GWG put the sale of L Bonds “on pause”, throwing the status of investors’ money into question. This month, in order to remain a publicly traded company, Nasdaq imposed a deadline of Oct. 31, 2021 to file current financial statements, and until the end of the year to hold its 2020/2021 annual meeting.

Silver Law Group represents the interests of investors who have been the victims of investment fraud and other financial misconduct. Managing Partner Scott Silver is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and represents investors nationwide in securities investment fraud cases. If you or someone you know invested in L Bonds, please contact Silver Law Group for a confidential consultation at ssilver@silverlaw.com or toll free at (800) 975-4345. We often work on a contingency fee basis, meaning you don’t owe us anything unless and until we recover for you.