Bills: Viaticals should be regulated as securities
Florida's chief financial officer said he will push for legislation to regulate viatical settlements more strictly. Bills to shift treatment of such investments are already before the Legislature.
Tom Gallagher cited the case of a Fort Lauderdale resident getting ready to retire as among his reasons for his efforts. He said Arlene Kaplan was getting ready to retire when she lost more than $15,000 of her life savings after investing in viatical settlement provider Mutual Benefits Corp.
In May, state and federal regulators shut down the company, which is charged with investor fraud and racketeering.
Viatical providers buy life insurance policies for less than the face value and resell them to investors who seek to make money upon the insured's death. By selling a policy for a percentage of its face value, the insured can get cash now for medical, living or other expenses.
The tradeoff is giving up a bigger payoff at death for one's beneficiaries.
"Hundreds of Floridians who have invested their hard-earned money -- sometimes their entire life savings -- in viaticals have been financially devastated because of outright fraud or inadequate disclosures," Gallagher said. "Fraud will flourish in this industry if unethical companies aren't stopped."
Proposals before the Legislature, House Bill 1437 and Senate Bill 2412, would require investments in viatical settlements to be regulated as a security instead of as insurance.
"The difference for investors would be more access to company information, any promises made to investors would have to be documented and approved by state regulators, and a determination of the investment's suitability would have to be considered, including the purchaser's financial and tax status, and the purchaser's investment objectives." Gallagher's office said.
The legislation also would require the broker and sales agent selling viaticals to be licensed.
Gallagher's office put the potential loss to investors since 1996 at as much as $2 billion. It said the average age of the defrauded investor is 70 years, the average loss is $40,000 and 46 states already regulate viaticals as securities.
Source: American City Business Journals Inc.
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