The primary risk associated with investing in life settlements (or viaticals) concerns the possibility that the insured (who has sold his or her life insurance policy to the investment sponsor) will outlive the money set aside by the sponsor to pay for continued life insurance premiums. In such a scenario, the investors in the life settlements may then be called upon to pay future premiums in order to ensure that the policy remains in force until maturity. When some investors refuse to pay, the remaining investors are left to cover higher premium payments, or else allow the policy to lapse.
Further, as appears to be the case with LSAR, when the sponsor can no longer afford to service the debt on its own credit facilities, then the sponsor may well be forced to seek bankruptcy protection. As outlined in LSAR’s Chapter 11 First Day Declaration, “Beginning in July 2009, in order to fund premium payments on the Policies… LSAR (as the borrower) and the Employees’ Retirement System of the Government of the Virgin Islands (“GERS”) and Attilanus (as lenders) extended a credit facility to LSAR, whereby Attilanus made an initial loan to LSAR in the principal amount of $500,000 and GERS made a loan to LSAR in the principal amount of $1,160,263.”
An additional risk associated with investing in LSAR has to do with the fact that it was offered as a private placement. Generally, investing in a private placement carries with it complexity and considerable risk — including the illiquid nature of the investment — and, therefore, is most typically only available to accredited and/or sophisticated investors. LSAR was offered as a private placement investment under SEC Regulation D (“Reg D”) beginning in 2008; the total offering amount was $64,000,000.
Financial advisors, and by extension their employer brokerage firms, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Reg D. Furthermore, financial advisors have a duty to disclose the risks associated with any investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with private placement offerings, including investments in oil and gas drilling funds, hedge funds, and other exempt offerings. Investors may contact a securities arbitration attorney at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.