This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

'Death Bonds' Look for New Life

Stocks in this article: C LPHI PRU CS JPM AIG GS

Subprime "Death Bonds"

Retirement Value was one of several companies in life settlement market, sometimes referred to as the "death bond" market, that when through its own financial crisis in 2008.

Retirement Value was shut down for securities fraud in 2010, according to The Texas State Securities Board. Brady explained that the longer people lived the more money people were required to invest and apparently the company was underestimating the amount of time a person would live in order to make more money.

"It has been a very nasty experience. I feel like I've been taken advantage of," Brady said. "I don't know if we will get the money back. If we do it will probably be a minimal amount because they are using it for the lawsuit attorney and lawyer fees. They took advantage of 900 people here."

The life settlement fund may have cost investors over $65 million, according to a report by The Associated Press. Unfortunately, it is not the only life settlement company being investigated for fraudulently predicting the deaths of policy holders.

Another example of retail investors getting burned by life settlements is Life Partners Holdings, which currently being investigated by regulators, according to Securities and Exchange Commission filings. The company may also face civil charges from the SEC for how the company projects life expectancy for those people whose policies they have purchased. The company CEO admitted in court that most of the life expectancy projections were probably wrong and were acquired from a Doctor in Reno, Nevada who could not verify the accuracy of his predictions, according to an article by The Wall Street Journal. Life Settlement could not be reached for comment.

"It is an extremely risky market. We have deep concerns for investors in this market. They have to be very careful," said California Insurance Commissioner Dave Jones. "We are watching what happens with Life Partners (LPHI)very carefully and depending on the outcome we will factor the regulations accordingly."

Because of high profile cases like Retirement Value and Life Partners, the traditional insurance industry is less than enthusiastic about life settlements.

James Avery Prudential's (PRU) CEO of Individual and Life Insurance and Agency Distribution says that the calculations that life settlement companies often provide investors "cherry pick" the best policies, but in the end they don't add up. Avery adds that many people in the pools are living two, three, or four years beyond those predictions made by the companies.

"There is a growing number of fraudulent cases. This is so similar to the subprime market where investors are promised a 15 percent return and buyers are promised value, but this is a Wall Street arbitrage business where the middleman walks away with a profit," says Avery. "The life settlement industry has been lobbying and regulations are not as effective as they need to be. Consumers and investors wind up paying a price."

The industry, which used to be dominated by companies such as Goldman Sachs (GS), Citigroup (C), JPMorgan (JPM) and American International Group (AIG) has gradually become dominated by foreign banks, and U.S. individual and institutional investors including hedge funds, pension funds due to increased regulation. Credit Suisse (CS), which owns PeachTree; Fortress (FIG); Apollo (APO); BlackRock (BLK) and Coventry and larger investors in the market.

2 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs