Our White Collar Criminal Defense Division assists those accused of life settlement fraud by providing you a strategic defend against such charges. We provide strong representation for originators, investors, and other individuals accused of life settlement fraud.
Being charged with life settlement fraud can have a drastic effect on a person’s life. Federal and state investigators will zealously investigate anyone who may have been involved. They will employ sophisticated investigation tools to determine who committed a crime.
Because we live in a post-financial crisis world where people are constantly being accused of Ponzi schemes, life settlement fraud is an easy target for such an accusation. This takes a toll on the person’s family, friends, and community.
We help our clients deal with government investigations and advise them on how to deal with law enforcement.
If you or a loved one has been charged with life settlement fraud, call us now.
What is Life Settlement Fraud?
Life Settlement Fraud occurs when someone defrauds someone in connection with a life settlement. This article first explains how life settlements work and then discuss possibilities of fraud in connection with life settlements.
Note that Federal and State Governments aggressively investigate and prosecute these crimes. Those convicted of this crime are facing several years in prison and a hefty fine.
Therefore, if you have been accused of life settlement fraud, you need a strong advocate on your side. The government will be zealous in their prosecution; you need someone who will be zealous on your behalf.
Example
Suppose that a person holding a life insurance policy needs cash right now but lacks liquidity. Perhaps he or she is suffering from failing health and needs cash to pay for sophisticated treatments or perhaps he or she wants to buy a large house in a retirement community in Florida.
While the insurance premium generally provides for the person holding the policy to return the policy to the insurer in exchange for cash payment, such cash payment is typically small. Under these circumstances, a life insurance settlement provides the insured with a good option.
At this point, a life insurance settlement company offers the insured party a cash payment now for the rights to the insurance payout upon the insured party’s death.
The payment will be significantly larger than the cash payment currently offered by the insurance company but will be much lower than the
insurance payout upon death.
A Life Settlement Transaction Is Known As A “Death Bond.”
Like bonds, a life insurance payout has a maturity before it pays out. In addition and parallel to bonds, buyers of life settlements will often package the rights to those life insurance payouts and sell them to customers, which are usually banks and other sophisticated financial institutions.
Life Settlement Agreement Avoids Lapse
Another feature of a life settlement agreement is that it avoids lapse.
What is a “Lapse?”
A lapse occurs when an insured does not pay the premium due, which is usually a monthly payment. When a lapse occurs, the insurance company generally has the right to terminate coverage.
Under a life settlement agreement, the party purchasing the rights to life insurance benefits will pay the premium while the insured pockets cash immediately without further obligation to the insurance company.In return, the insurance company will provide a payout to the buyer of the life settlement upon the insured’s death.
Executing a life insurance settlement, by itself, is not illegal. You committed no crime by making such an offer. It is often viewed as a “win-win” situation because both the insured and the party purchasing the rights to the life insurance “gain.”
Types of Life Settlement Fraud
Issues arise when the purchase and sale of life settlements consist of fraud. The following scenarios may occur wherein fraud is connected to life settlements:
Investor Fraud
When a party purchasing a life settlement wants to make a deal, such a party must have sufficient cash to purchase the policy. If that party does not have the cash, such party must enlist the help of investors.
As a result, investors will be getting a piece of the life insurance. At this point, the buying party must set aside investor funds in a separate account to pay premiums and earmark investor payment when payment comes due. If this is not done, the party executing the agreement can be charged with fraud.
Replacement
With a life settlement transaction, the party executing the transaction will encourage the insured to sell his or her current life policy and replace it with a different life policy. Often, a percentage of the cash payout for the current life policy will be used to purchase a new policy. Such advice will often come about due to questions about the insured leaving over an inheritance for his or her heirs.
There are a few issues with replacement.
- First, it may not be good business sense to replace a good life insurance policy, which was likely purchased at a point where the insured had stronger buying power, with a policy that is weak. The newer policy may be more expensive and have significantly fewer benefits.
- Second, the party seeking to purchase the life insurance may be telling the insured that selling his or her current life insurance policy and replacing it with a new house in Florida is overall a better investment for his or her heirs. This is often not the case. Courts may view the selling party as the more sophisticated stronger party versus the older senior selling life insurance.
In these scenarios, prosecutors may view this as fraud by deceiving a senior out of his or her life insurance.
Securitization
Purchasing life settlement insurance in exchange for money is a bet that many are willing to make. The party making the purchase will often have investors and other buyers like hedge funds. As mentioned, such transactions are similar to a bond that is sold for a payout upon maturity.
The SEC may view a life settlement transaction as a security, which has burdensome registration requirements. The SEC prosecutes violators and violations of SEC rules often have long prison sentences.
During the financial collapse, large banks like Lehman Brothers and Bear Stearns similarly securitized mortgage loans. These securitizations are called mortgage-backed securities, or MBS. Since then, MBS and similar financial products have come under intense scrutiny.
The SEC will likely prosecute someone if he or she is doing something with similarities to MBS. The process of taking life settlement claims and selling them to investors has similarities with MBS agreements.
For instance, the SEC may accuse you of fraud if you sold investment securities to people deemed vulnerable or less sophisticated. Parties that buy death bonds may claim that they invested in life insurance settlement because they considered them safe investments.
Defenses Against Accusations of Life Settlement Fraud
As mentioned, life settlement transactions, by themselves, are not criminal. However, life settlement transactions attract significant scrutiny due to their similarities to so-called “predatory lending” and that the other side of these transactions are almost exclusively seniors. Selling a life settlement may be viewed as a sophisticated, shrewd businessman preying on an old granny.
Note that you are innocent until proven guilty even though the party on the other side is a senior. The prosecution must prove that you committed fraud beyond a reasonable doubt. You do not have to prove your innocence; the prosecution has to prove your guilt.
With respect to investor fraud, you can only be guilty of investor fraud is there is evidence that you did not handle business allocations properly.The prosecutor must demonstrate that you did not place money in the proper place.
Discrepancies in Your Financial Statements
Even if there are discrepancies in your financial statements, this does not mean that you committed fraud. Money often flows through one account into different accounts during the regular course of business.
The prosecution must show that you intended to misallocate money; a discrepancy does not mean that you intended to misallocate proceeds.
Regarding the replacement, the prosecution must demonstrate that the senior purchasing the life settlement had detrimental reliance on your advice. Most often, someone seeking to execute a life settlement will advise the prospective senior that he or she should first discuss this with a financial advisor.
The contract between the parties will most likely state that you recommended that the other party discuss the sale with an independent financial advisor before executing the deal.
It is usually the senior who approaches the party involved in life settlements about a sale. The senior will often be in a cash crunch and look for a life settlement. This strongly suggests that the senior was not acting upon your advice and instead on his or her understanding of their financial situation.
Moreover, the replacement life insurance, combined with whatever the senior is doing with the influx of cash, may have been the better course of action.
Example
If a senior needs an influx of cash because of a medical condition, the proper move is to sell his or her life insurance payout in exchange for immediate cash.
Securitization
With respect to securitization issues, there is a body of law of proper securitization. Our attorneys understand the securities laws. We will review your paperwork and provide expert analysis of your case. The prosecution will probably attempt to draw a parallel to MBS as a tool to influence the jury.
Just because someone loses money in an investment does not mean that you committed fraud.
People invest all the time with the understanding that they may never see the money again. We will examine the documentation that you provided to investors to determine whether those documents contain information about the type of investment and associated risks.
We will educate the jury on the right and wrongs of securitization and distinguish your case.
If the investor knew or should have known about the risks then losing money is not a cause of action against the party purchasing the life insurance. We will articulate to the court how your clients knew about risk and invested nonetheless.
Life Settlement Fraud in the News
In 2015, the SEC launched an investigation against Credit Nation, which was a business that bought life insurance policies. Credit Nation was affiliated with a large, family-owned car dealership in Georgia that solicited customers, largely seniors, to invest in life settlements. Credit Nation claimed that the life settlement investments were a cheaper, safer way to invest instead of stocks or bonds.
According to the SEC, Credit Nation principal James Torchia ran a Ponzi scheme where he used the fund as his personal “piggy bank” instead of properly managing the funds. Instead of placing money in a business account and using those resources to pay premiums, he let premiums lapse. Whenever Torchia had to make a payout to a client, he would use money from recent investors to satisfy claims or withdrawals.
Eventually, Credit Nation was placed into receivership with the goal of being wound down. Torchia faced jail time. More information about this case can be found here.
Looking for a Criminal Defense Attorney? – Call Us Now
Charges of life settlement fraud can have a devastating impact on your family, your business, and your future as an investor or investment advisor. In the post-financial crisis world, any association with a financial product that sounds similar to MBS will automatically catch scrutiny. People root for the authorities to catch the “crooks” and throw them in jail for several years. The environment is a very anti-life settlement and very pro-SEC enforcement.
That is why you need an experienced white collar criminal defense attorney.
Our attorneys understand life settlement fraud accusations and can help you understand the charges that are being brought against you. We can accompany you to interrogations and ensure that your rights are not violated. Ultimately, our goal is to help you establish a legitimate defense.
We have the knowledge and background to successfully defend anyone prosecuted for life settlement fraud in both federal criminal and civil proceedings.
We have represented industry and corporate clients, lawyers, support staff, and other professionals accused of crimes that involve life settlement fraud.
If you or someone you love has been charged with life settlement fraud, call our attorneys for a free legal consultation.
