Risky “Death Futures” Draw New Montana Fraud Protection Proposal

January 29, 2009

A proposal by Montana State Auditor Monica Lindeen, would help protect Montana investors from what the North American Securities Administrators’ Association (NASAA) calls one of the top 10 investment scams in the country.

The bill, SB 151, is sponsored by Sen. John Brueggeman at the request of the State Auditor’s Office, was heard by the Senate Business and Labor Committee on Tuesday, Jan. 27.

“Montana should not be a safe haven for con artists,” said Lindeen.

Citing deceptive marketing practices and a high risk of fraud, Lindeen said the bill will help her office protect Montana investors from risks associated with “death futures” or viatical settlements.

“Compare it to taking out a contract on someone’s life,” said Lindeen. “Unless we take action now, we would be allowing “investors” to purchase an interest in someone’s life insurance policy, allowing them to profit from the policyholder’s early demise.”

The viatical industry began around 1990 as a way to help the terminally ill receive a partial payment on their life insurance policy while they are still alive. In a typical transaction, the person holding a life insurance policy sells it to a third party “broker” in return for a portion of the death benefit. The broker then sells shares of the policy to investors, who collect a share of the death benefit from the broker when the original policyholder dies.

Drastic changes in the industry have out-paced regulation, leaving the industry ripe for fraud and disastrous for investors, she said.

This bill provides protections for Montanans by requiring that the inherent risks associated with investing in viatical settlements — gambling on when someone will die — are being adequately disclosed, as wells protecting investors from being outright defrauded by dishonest viatical companies and their sales agents. It also adds increased privacy protections for Montanans, she added.

Lindeen says modern-day financial fraud artists most often prey upon unsuspecting senior citizens and fleece them out of their life savings or retirement nest eggs.

“In these financial times, investors are particularly vulnerable to fraudulent viatical settlements schemes,” said Lindeen. “They attract people who are desperately in need of more income from their small investment funds, by offering returns that are above market rates.”

Source: MSA

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