South-Western Legal Studies in Business

Viatical Settlements Are Securities
Description Appeals court held that financial instruments called viatical settlements, where life insurance rights are purchased by an investor prior to the death of the insured, are securities subject to federal securities regulation.
Topic Consumer Protection
Key Words Securities, Jurisdiction, Definition, Viatical Settlement
C A S E   S U M M A R Y
Facts A viatical settlement is a transaction in which a person who is terminally ill sells the benefits of his or her life insurance policy to a third party in return for a lump-sum cash payment equal to a percentage of the policy's value. The size of the profit or loss depends on how long the insured party lives after the settlement. MBC is a viatical settlement provider that, over ten years, invested over $1 billion in settlements by identifying terminally ill persons and bidding on their policies. Investors placed money with MBC to underwrite the settlements in exchange for profits. The SEC sued, contending that raising money for the settlement enterprise is an unregistered security and that MBA falsely represented the expected profits to investors. The district court held that the viatical settlement investments were a security under the Howey test and ordered a stop to sales until the matter could be fully resolved. MBC appealed, contending that the settlements were not securities so the SEC had no jurisidiction.

Affirmed. Federal courts have jurisdiction over this matter because federal securities law applies. A viatical settlement is an "investment contract" that constitutes a "security" that is subject to federal securities regulation under the Securities Act of 1933. The elements of the Howey test have been met, so the instrument is a regulated security.

Citation SEC v. Mutual Benefits Corp., ---F.3d--- (2005 WL 1047696, 11th Cir., 2005)

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