The Securities and Exchange Commission sued Life Partners Holdings Inc. and three top executives, alleging a years-long disclosure and accounting fraud that involved misleading financial statements and backdated documents shown to auditors.
In PHL Variable vs. Price Dawe 2006 Insurance Trust Insurance Company, the court has affirmed the common law ability of a legally insured person or insurable trust to sell a policy on that person’s life for market value — provided that procurement of the policy is not part of a straw purchase pursuant to a prior agreement to resell to an investor, and that the procurement is not part of an illegal wager in which a third party directly or indirectly pays the premiums.
The court holds that an arrangement involving an agreement with a straw man is illegal. An illegal arrangement occurs when an investor has a pre-negotiated arrangement for an immediate transfer of ownership of the policy, and there is no insurable interest on the part of the original owner, according to the court.
The court has ruled that the “intent” of the insured to sell a policy is irrelevant. The transaction itself is legal if, at inception, the individual procuring the policy has insurable interests and does not have a pre-negotiated agreement to immediately transfer ownership.
This link takes you to the SEC website where the report can be downloaded.
The article contains multiple links to original documents at the NY DOI.