Viaticals are now subject to regulation
A federal appeals court on Friday affirmed that insurance investments sold by Mutual Benefits are securities subject to government regulation.
BY PATRICK DANNER
pdanner@herald.com
The insurance investments sold by Fort Lauderdale-based Mutual Benefits Corp. are subject to regulation by the Securities and Exchange Commission, the 11th Circuit Court of Appeals ruled Friday.
The ruling marks another setback for Mutual Benefits and the individuals identified by the SEC as the company's former principals.
Yet it doesn't resolve the yearlong legal limbo for the 29,000 investors who collectively purchased 7,322 insurance policies with a face value topping $1.5 billion.
The court's decision conflicts with a 1996 federal appeals court ruling that determined the investments aren't securities. Mutual Benefits purchased the life insurance policies of the sick and elderly and then sold the policies to investors -- transactions known as viatical settlements.
Mutual Benefits' lawyers now could petition the U.S. Supreme Court to take up the debate. The high court is selective about the cases it hears on appeal, but the differing appellate court rulings could increase the chances of the case being heard.
Another option Mutual Benefits' lawyers could pursue is a rehearing before the 11th Circuit Court.
''Whether we believe there is a basis to challenge it, we haven't decided,'' said George Mahfood, a Miami lawyer representing Mutual Benefits. ``We have to evaluate it before we can comment.''
BOGUS EXPECTATIONS
Lawyers for the SEC, which a year ago obtained a court order to seize Mutual Benefits assets and put it in receivership, couldn't be reached for comment. The SEC and Florida regulators allege that Mutual Benefits defrauded investors by using bogus life expectancies to determine when the insured people would die and using new investors' money to pay off earlier ones.
The federal trial is scheduled to start on Halloween.
As securities, viatical settlements would face greater oversight. Those who sell the investment would have to be licensed. Companies also would be required to fully disclose potential risks.
The government seizure of Mutual Benefits has divided investors. While some claim insured people have lived way beyond life expectancies, others tell of insured people who died well before they were expected. The quicker the insured dies, the higher the return.
Miami resident George Braddock said his 81-year-old mother, Ruth, a retired schoolteacher, was a happy customer of Mutual Benefits. She invested about $23,000 in three policies. Two of the policies matured well ahead of schedule and she reinvested the proceeds. With Mutual Benefits in receivership, her investments are frozen. She is angry at the SEC.
''They have tried to retroactively make this investment a security, even when previous courts have ruled it's not a security,'' George Braddock said.
Victor Diaz, a Miami lawyer representing hundreds of investors with claims against Mutual Benefits, praised the 11th Circuit Court ruling.
''This is a great ruling for the investing public because it affirms that the securities laws of our country are not so easily circumvented by people looking to take other people's money,'' Diaz said.
INVESTMENT CONTRACT
The Atlanta court's 18-page decision affirms a June ruling by U.S. District Court Judge Federico A. Moreno of Miami.
''Investors relied on both the pre- and post-purchase management activities of [Mutual Benefits] to maximize the profit potential of investing in viatical settlement contracts,'' the court said in its opinion. Mutual Benefits ``thus offered what amounts to a classic investment contract.''
The court's ruling follows passage of state legislation.
Source: Herald.com
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