Life Partners Faces Potential SEC Action in Sale of Life Settlements
The SEC may file a civil action against Life Partners Holdings, Inc. for allegedly misleading public shareholders and investors about the accuracy of the firm's life-expectancy estimates ("Life Partners Could Face SEC Action," Wall Street Journal, May 14, 2011). The firm, which has sold billions of dollars in life settlements (financial transactions in which a policy holder sells a no longer wanted or needed life insurance policy to an investor, and the investor receives the benefits upon the insured's death) markets a return of 10 to 15 percent on the policies.
According to the WSJ article, Life Partners bases the promoted returns on a life-expectancy calculation that is rarely accurate. Research by the Journal showed that the vast majority of people insured by the policies brokered by Life Partners lived beyond what the calculation predicted. Unfortunately for investors - who use the company's life-expectancy estimates to predict returns before they purchase a particular policy - this could mean a substantially smaller return than expected.
Numerous lawsuits have been filed against Life Partners since the errors in the calculation were brought to light in an articlepublished by the WSJ last December. SEC staff is expected to recommend that the Commission file an "injunctive" action against the company and its two top officers.