In response to a 2010 report issued by the U.S. Securities & Exchange Commission’s (“SEC”) Task Force on Life Settlements (“Task Force”), the American Council of Life Insurers (“ACLI”) sent a letter (the “Letter”) to Mary Shapiro, Chairwoman of the SEC, on October 6, 2011, commenting on certain aspects of the Task Force’s recommendations. In particular, among other things, the Letter:
- Agrees with the Task Force’s general recommendation that life settlements should be regulated as securities, but the Letter qualifies this by stating that sales by the original owner to a third party should continue to be regulated under the insurance law (it appears that the ACLI’s position that only subsequent transfers should be regulated as securities);
- Agrees that life settlements should be excluded from the definition of a “security” under the Securities Investor Protection Act, which is designed to protect investors in the event of the failure of their broker, since such protection may be used as a marketing tool by life settlement promoters;
- Agrees with the Task Force’s recommendation that the SEC staff should monitor conduct by producers engaging in life settlement transactions to ensure compliance with applicable securities laws and FINRA rules (this would apply in connection with life settlements categorized as securities);
- Disagrees that all producers engaging in life settlement transactions should be regulated under federal securities laws and FINRA rules (it is the ACLI’s position that state insurance law governing such producers is generally well established); and
- Urges the SEC to prohibit life settlement securitizations, because, among other things, there is a lack of information about settlement activity and such securitizations may be structured in a manner so as to be exempt from SEC registration.