Investment News Point/Counterpoint on Life Settlements

In a September 12, 2010 article in Investment News, Larry J. Rybka, President and CEO of Valmark Securities Inc., and James W. Maxon, of counsel at Manning & Martin, LLP, air their differing points of view on the Life Settlements Task Force recommendation to the SEC that it urge Congress to include life settlements in the definition of securities. In “Point/Counterpoint: Are life settlements essentially securities?” These two debate the possible move.

Mr. Rybka states: “If the definition of a security under the securities laws were amended specifically to include life settlements under the [North American Securities Administrators Association, Inc.] model—or something closely approximating it—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.”

He goes on to indicate that state settlement regulations create a “hodegepodge” of rules and regulations, inhibiting competition. He concludes: “Securities regulation would create full, fair and adequate disclosure of all material facts, and the discipline of Finra oversight would afford policy holders consistent protection in all U.S. jurisdictions. This would likely make it harder for abusers to sidestep the law. Federal securities regulation, therefore, is the next logical progression for a market that is complex, opaque and riddled with too many intermediaries.”

Mr. Maxon, in his counterpoint argument states: “the most probable consequence of such an amendment would be to increase significantly transaction costs and diminish investor interest in the asset class.” Mr. Maxon further states his conclusion that the SEC already possesses the authority to characterize life settlements as securities, based on case law he reviews briefly in the article.

Maxon looks at state regulation as well, concluding that the current regulatory scheme covers more than 90% of the U.S. population based on settlement regulation in more than 45 states. His final counterpoint: “nothing about life settlements makes the legislative blunderbuss of a revision to the definition of securities under federal law necessary or advisable.”