SEC suit a challenge for life settlements industry

The U.S. Securities and Exchange Commission on Tuesday sued Life Partners (NASDAQ: LPHI), a major dealer in the secondary market for life insurance policies.  Life Partners and other financial firms have been at the forefront of the “life settlements” industry, which purchases life insurance policies from individuals, usually seniors, for a lump-sum and collects the face amount when they die. (Disclosure: Some years ago, I was an investor-relations advisor to National Financial Partners, an insurance and financial services firm that is active in this market.)

The industry has seen its share of controversy but in recent years has made an effort to develop business-practice standards under the authority of a trade group, the Life Insurance Settlement Association, fondly known as LISA.  As of this morning LISA had no comment on the SEC’s action, and it is not clear if Life Partners is a member of the group.

Importantly, the agency has not accused Life Partners of misconduct in the purchase of life insurance policies from clients, but of misleading investors over its valuation of the policies.   (It’s unclear whether the SEC would have jurisdiction over insurance contracts, which are usually regulated by the states.)  The SEC also accused two of the company’s executives of insider trading.

The case seems likely to draw renewed attention to the sector, from both the media and from state attorneys general, several of whom have investigated life settlements firms in the past.  It’s a good chance for the industry to take a stand, articulate the benefits it brings to people and how its market operates.  We’ll have to wait and see.

 

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