TAG | stoli fraud
Comments off · Posted by Securities Lawyer in FINRA
In an InvestmentNews.com article from March 6, 2012, Darla Mercado writes that the Lincoln National Life Insurance Co. will pay $5 million in death benefits for a life insurance policy the insurer had contended was fraudulent.
The jury in the U.S. District Court for the Southern District of Florida on Friday found in favor of plaintiff Steven A. Sciarretta, a trustee of the Barton Cotton Irrevocable Trust and owner of a $5 million life insurance policy on the life of the late Mr. Cotton, in a case against Lincoln National.
Mercado writes that Mr. Sciarretta took the insurer to court last April because Lincoln would not pay the death benefit proceeds, even though Mr. Cotton had died after the two-year contestability period in which carriers can refute claims had expired. Lincoln countersued and alleged Mr. Cotton’s policy was void from the start because he had indicated falsely on the policy application that he had no intent to sell the coverage on the secondary market or to assign a beneficial interest in the policy to a trust.
Lincoln National, the insurer, claimed the policy was issued at the behest of so-called stoli promoters. Stoli, or stranger-originated life insurance, involves buyers’ purchasing life insurance coverage they don’t need for the express purpose of selling the death benefits to investors.
The InvestmentNews.com article goes on to say that the jury found the trust had indeed made false statements on the life insurance application. But the panel also stated that it believed Mr. Cotton had not intended at the moment of purchase to transfer the policy to another party with no insurable interest in his life. The jury also found that Lincoln itself was not harmed by these misrepresentations, according to the verdict.
Mercado adds that Mr. Sciarretta benefited from Florida’s insurable interest law, which contains an implicit “good faith” requirement, which requires the insurer to prove that the policy was purchased with the sole intent to sell it to a stranger who doesn’t have an insurable interest in the life of the insured person. In this situation, however, Mr. Cotton’s family members testified that he had intended for the insurance to benefit them. Because the policy was issued in good faith, the trust will end up collecting on the full $5 million.
If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses. To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. Lars K. Soreide will stand up and fight for the rights of consumers.
Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).
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Comments off · Posted by Securities Lawyer in FINRA
It was reported that on July 22, 2011, the Securities and Exchange Commission (SEC) released a report from its Life Settlements Task Force which recommended that the SEC urge Congress to amend the federal securities laws to include life settlements as securities. The SEC report also recommended that the SEC monitor brokers and providers to assure that legal standards of conduct are being met.
This report raises a key policy question about life settlements, in which a policyholder sells the policy to someone else, who then assumes responsibility for paying the premiums. In exchange, the insured person receives a lump-sum payment that exceeds the policy’s cash surrender value but is less than the expected payout in the event of death.
The SEC proposal to define life settlements as securities is both wise public policy and the only solution that would give all participants the confidence to create a sustainable secondary market for life policies.
This 43-page report and its 40 pages of exhibits are the product of a joint task force that conducted an extensive review of existing law, litigation and enforcement actions. The task force also interviewed all major market participants, making the study the most comprehensive look at this complex issue to date.
Securities Lawyer, Lars Soreide, feels that ‘life settlements’ should be considered ‘securities.’ Lars Soreide says, “It is a gray area when a financial advisor takes off his securities hat and puts on his insurance hat to sell you a life settlement, which can leave many customers confused as to whether they are dealing with insurance products or securities. Furthermore, by not classifying life settlements as securities it makes it more difficult on investors, who were burned by their advisors, to pursue legal action. By not classifying life settlements as securities, investors may not be able to pursue these claims in the Financial Industry Regulatory Authority (FINRA) forum and have to sue in state or federal court which is a longer, more expensive process, unless all parties agree to arbitrate before FINRA.”
The courts and regulators have found investments in life settlements to be securities. The SEC report, in fact, points to 25 SEC enforcement actions and 13 enforcement actions brought by the Financial Industry Regulatory Authority Inc. that rest on this conclusion, as well as numerous other cases.
If the definition of a security under the securities laws were amended specifically to include life settlements under the NASAA model the definition would preserve a place for state regulation of legitimate life settlements. At the same time, it would close the door to many abusive transactions, including almost all forms of stranger-originated life insurance.
If life settlements were defined as securities, many of the abusive practices that have spawned more than 300 lawsuits and loss of much personal wealth would have been avoided. Few of these litigated cases involved variable policies, which come under the purview of securities regulation and demonstrate the relative effectiveness of Finra regulation and enforcement.
The SEC proposal to define life settlements as securities may be just what is needed to boost investors’ confidence and encourage them to buy, which would make the market more liquid.
Securities regulation would create full, fair and adequate disclosure of all material facts, and the discipline of Finra oversight would afford policyholders consistent protection in all U.S. jurisdictions. This would make it harder for abusers to sidestep the law.
If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses. To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com.
We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).
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