TAG | life settlement investments
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The Securities and Exchange Commission(SEC) filed an enforcement action against Provident Capital Indemnity, Ltd. (“PCI”), its president Minor Vargas Calvo (“Vargas”), and its purported outside auditor, Jorge L. Castillo (“Castillo”) seeking to halt a massive, ongoing fraud by PCI, an offshore company located in Costa Rica that provides financial guarantee bonds on life settlements and claims to protect investors’ interests in life insurance policies by promising to pay the death benefit if the insured lives beyond his or her estimated life expectancy. According to the complaint, from at least 2004 through March 2010, PCI issued approximately 197 bonds backstopping numerous bonded offerings of investments in life insurance policies with a face value of more than $670 million.
The PCI bonds were a material component of numerous third-party life settlement offerings in the United States and abroad. Without a bond, a life settlement investment is illiquid and open-ended because the investment’s pay-out date and return are dependent upon the date of the insured’s death. PCI’s bonds offered a fixed maturity date for the investments because PCI’s bond obligated PCI to pay investors (directly or indirectly through the life settlement issuer) the face value of the underlying insurance policy by a date certain if the insured lived past his life expectancy date according to the complaint.
In the SEC article, the complaint alleges that the defendants misrepresented PCI’s ability to satisfy its obligations under its bonds by making material misrepresentations about:
- whether PCI’s financial statements had been audited,
- the assets that backed PCI’s bonds;
- PCI’s credit rating; and
- the availability of reinsurance to cover claims on PCI’s bonds.
Since at least 2003, PCI, Vargas and Castillo represented to life settlement issuers, and in turn, the investing public, that Castillo had audited PCI’s financial statements in accordance with generally accepted accounting standards. Contrary to their representations, however, the complaint alleges that Castillo never conducted an audit of PCI and instead issued clean audit reports at Vargas’s bidding, thereby supporting the illusion that PCI had materially larger assets and greater financial wherewithal to support its obligations under the life settlement bonds. According to the complaint, PCI’s “audited” financial statements reflect what appears to be a fictitious “Long Term Asset” that has comprised some 70% to 80% of PCI’s total reported assets from at least 2003 to the present.
SEC has charged the defendants with violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5] and alternatively charged Castillo with aiding and abetting PCI’s and Vargas’s violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Exchange Act Rule 10b-5. The Commission also named Desarrollos Comerciales Ronim S.A., PCI’s managing general agent, as a relief defendant.
The SEC complaint alleges that PCI’s “audited” financial statements were provided to Dun & Bradstreet (“D&B”), which issued PCI a favorable rating of “5 A/S,” based exclusively on PCI’s reported net worth. PCI then misleadingly represented in its marketing materials that D&B’s rating is a reflection of “successful customer satisfaction” and “the ability to maintain one of the insurance industry’s lowest loss ratios.” According to the complaint, PCI and Vargas also have represented that PCI was backed by a “bouquet” of reputable reinsurers that would backstop PCI’s obligations under its life settlement bonds when, in fact, PCI had no reinsurance coverage.
The Commission’s investigation in this matter is ongoing.
This article appeared on the SEC’s website.
Call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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In an article from InvestmentNews, Darla Mercado writes that an SEC task force recommended that life settlements be defined as ‘securities,’ thus making such transactions subject to federal securities laws.
The article states that bringing life settlements under the definition of security would require market intermediaries, including settlement brokers and providers, to register with the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc., according to a report by the task force.
This task force, which has been studying the issue since September, found that while there are two regulatory frameworks addressing life settlements — one from the National Association of Insurance Commissioners and the other from the National Conference of Insurance Legislators — there are numerous variations in how the states actually adopt those rules.
Forty-eight states treat life settlements as securities under state laws, but some states exclude the original sale from the insured person or the sale from the policy owner to the provider.
The Financial Industry Regulatory Authority or “Finra,” currently oversees life settlements involving variable life insurance, but federal courts have reached different conclusions as to whether fractional interests in life settlements are indeed securities, according to the SEC report.
The article goes on to say that the task force recommended that SEC staff members ensure that settlement brokers and providers are sticking to legal standards of conduct, and that the staff watches for the development of a life settlement securitization market. Thus far, no securitizations have been registered with the SEC and offered to the public.
The task force also called upon Congress and state legislators to weigh applying stronger regulation to life expectancy underwriters and asked the SEC to consider issuing an investor bulletin on investments in life settlements. Another report released by the Government Accountability Office also criticized the patchwork of life settlement regulation in the states. Disclosure requirements can vary across jurisdictions, and policy owners could sell their policy without knowing whether they received a fair price or how much their brokers made, the GAO said.
Inconsistent laws have also hampered industry participants, as some brokers and providers have had to deal with the cost of complying with different rules in multiple states, the GAO said. The organization called for consistent legal protection for similar products and services, including disclosures, sales practice standards and suitability requirements.
Call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority
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SEC Says Ex-UBS Adviser Tricked Clients, Commission claims Kobayashi Lived it up on Client’s Life Settlement Investments
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In an InvestmentNews article by Darla Mercado she writes that the SEC has slapped a former UBS adviser with fraud charges, alleging that he set up a fund for investing in life settlements but instead used investors’ dollars to hire prostitutes and pay down gambling debts.
It was reported that the Securities and Exchange Commission charged Steven T. Kobayashi with fraud charges, ordering him to pay undisclosed civil penalties and disgorge all alleged ill-gotten gains. He is also facing related wire fraud and money-laundering charges by the U.S. Attorney’s Office in the Northern District of California.
InvestmentNews writes that the alleged fraud goes back to 2004, when Mr. Kobayashi was an adviser with UBS Financial Services Inc. Back then, a few of his clients were interested in investing in a pooled investment fund, and he suggested that they consider life settlements, the SEC claimed. Then, once the investors agreed to go along, Mr. Kobayashi at the end of 2004 set up Life Settlement Partners LLC, which purchased policies and operated outside of the adviser’s work with UBS, the commission charged. But according to the complaint, he did not notify UBS of his affiliation with Life Settlement Partners.
LSP had operated legitimately through 2005, buying 25 policies and receiving some of the proceeds as the policies matured, the SEC claims that Mr. Kobayashi began to siphon off the funds for his own use. Between February 2006 and September 2009, he allegedly pulled $1.4 million from LSP and set up a $3 million line of credit with the clients as guarantors.
The SEC claims that Kobayashi used the allegedly misappropriated cash to cover gambling debts, buy luxury cars and hire prostitutes. But the adviser blew through LSP’s liquid assets by the middle of 2007, the complaint states. Mr. Kobayashi became unable to pay down premiums on the policies, and many lapsed, according to the complaint. He also was unable to pay down the line of credit, the complaint states.
The LSP investors came looking for their returns, Mr. Kobayashi turned to a handful of UBS customers, allegedly advising them to liquidate holdings in their accounts and to loan money to LSP. Those proceeds went toward paying disgruntled LSP investors, according to the SEC. Then, Mr. Kobayashi allegedly siphoned off $1.9 million from UBS customers by directing them to liquidate their accounts for supposed investments. The SEC claims that he also stole an additional $4 million from clients at UBS and LSP — including the $3 million line of credit.
It was reported that Mr. Kobayashi resigned in Sept. 2009 after a client complained to the firm, claiming that the adviser had stolen “hundreds of thousands of dollars” from her and other clients’ accounts. She also claimed that Mr. Kobayashi had solicited loans from her and other customers, according to the SEC’s suit. UBS notified the SEC about Mr. Kobayashi’s misconduct.
If you feel you have been a victim of the alleged fraudulent schemes of Steven T. Kobayashi with USB Financial Services, Inc., or any other similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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