Investors in Court-Controlled Life Settlements Company Could Receive Partial Return of Money this Year

May 12

The court-appointed receiver in control of Retirement Value LLC, a New Braunfels life-settlement investment company shut down after an investigation by state regulators, will recommend that investors in the company receive $7.7 million in initial payments later this year. The distribution would constitute 10% of the total amount of claims that 900 investor-victims have made against Retirement Value.

In a new report, the receiver in control of Retirement Value, Dallas attorney Eduardo S. Espinosa, said that after the initial distribution, "We anticipate making further distributions in the future."The frequency and amount of future distributions are uncertain at this time, according to Espinosa, an attorney with K&L Gates LLP.

Travis County state District Judge Stephen Yelenosky shut down Retirement Value LLC in May 2010 at the request of the State Securities Board and Texas Attorney General's Office. The state accused the company of securities fraud and deceptive practices in the sale of life-settlement investments. The company's investments were based on the proceeds from the death benefits of people who owned life insurance policies that were purchased by Retirement Value.

Securities Commissioner Benette L. Zivley noted that Retirement Value was able to collect $77 million from investors in just 10 months in 2009 and 2010.

"A joint regulatory effort made it possible to quickly to shut down the company, with the result that investors have had some of their money preserved,"Zivley said. "The State Securities Board, in conjunction with the diligent work of Mr. Espinosa, his law firm, and the Office of the Attorney General, will continue to work toward recovering additional funds."

The commissioner cautioned investors that life-settlement investments involve a high degree of risk. The seller of such an investment, for instance, cannot guarantee a certain return because there is no way to reliably predict an individual's actual life span. Also, policy premiums must be paid until the insured individual dies or the investment will be worthless.

"There are numerous factors that need to be disclosed in life settlement transactions,"Zivley said. "Investors can sometimes pay huge commissions without knowing it. Life expectancies are very hard to predict with the advances in medical care. And investors could end up on the hook for premium payments for far longer than they expected, drastically cutting or eliminating their expected return."

The receiver said he will recommend a plan to hold and maintain the life insurance policies acquired by Retirement Value. Holding the policies until they mature will mean a long wait for most investors to recover their principal - at least 10 years - but the strategy could provide a return of 100% of investors' principal.

The receiver's report points out that Retirement Value, through a firm called Midwest Medical Review LLC, significantly underestimated the life expectancies of the people whose policies they purchased. The life expectancy estimate is a critical component of a life settlement investment. Companies that purchase life insurance policies must pay the premiums to keep the policies in force so they can collect the benefits when the insured dies. If an insured outlives his or her life expectancy, premiums must continue to be paid, shrinking the return on investment in the death benefits.

Besides grossly understating life expectancies, Retirement Value "failed to maintain meaningful or appropriate financial records,"the receiver's report said, and the company did not reserve enough money to pay premiums on the policies it acquired.