Spitzer accuses Philadelphia `life settlement’ firm of fraud
ALBANY, N.Y. - One of the nation’s leading “life settlement” companies - a business that helps people cash in life insurance policies before they die for a fraction of their value - made “secret payments” to suppress competitive bids and charged high commissions that hurt the policy sellers, New York Attorney General Eliot Spitzer charged Thursday.
Coventry First LLC of Philadelphia, a leader in the growing $6 billion industry, is accused in a lawsuit Spitzer filed in state Supreme Court in Manhattan on Thursday. Spitzer said Coventry violated fraud and antitrust laws by making secret payments to competitors that stifled bidding and weren’t disclosed to policy sellers.
The company, which said it provided documents and interviews to assist the investigation, criticized Spitzer’s action.
“The attorney general’s civil complaint relies almost exclusively on a handful of out-of-context e-mails that do not support the allegations,” said company CEO Alan Buerger. “We intend to fight the allegations and are confident that we will be vindicated in court once the true facts are laid out.”
Buerger said Coventry has lobbied Albany to regulate life settlement companies to protect firms and customers, but Spitzer’s “regulation through litigation will not advance this goal.”
“The vast majority of owners we purchase policies from are represented by counsel and/or financial planners, and Coventry has dealt with them in good faith and with the highest standards,” he said. “Our customers and business partners know that Coventry First has set the standard for unquestionable ethics and integrity.”
The practice of paying policy holders for their life insurance is legal and Spitzer says the industry has tripled in size in the last three years. The companies pay for the policies, keep up premium payments then collect upon the sellers’ deaths.
“Almost 90 percent of life insurance policies lapse without any benefit to the policy owner,” Buerger said. “Coventry First has delivered more than $1 billion to policy owners whose options previously were limited to surrendering their policies for a fraction of their worth, or simply letting them lapse in order to avoid unconscionably high premiums.”
But Spitzer said Coventry brokers in more than 200 cases nationwide were paid undisclosed commissions that amounted to 50 percent or more of what the policy seller received.
In one case in 2005, an 85-year-old man living in Florida missed out on a competitive offer for his policy because of a $5,000 hidden fee paid to a broker to “sit on” his offer, Spitzer said.
In another case in 2004, Spitzer said an 80-year-old woman from New York sold her $4.9 million policy for $705,000 after a bid arranged by Coventry. Spitzer claims Coventry officials worked out a deal with a competitor to ensure the woman took the Coventry deal. Spitzer said the Coventry broker paid the competitor $49,000 not to bid.
“The situation cries out for both greater regulatory scrutiny and serious soul searching by the industry and its advocates,” Spitzer said. Spitzer said he has e-mails that talk about the commissions and the dealing among policy buyers.
Source: AP Philly Burbs
