New York Attorney General Eliot Spitzer has started a legal battle with Coventry First L.L.C.
Spitzer has filed a civil suit in a state court in New York that accuses Coventry, Fort Washington, Pa., of paying life settlement brokers secret “co-brokering” fees to suppress competitive bids.
Payment of undisclosed co-brokering fees is wrong, because the brokers are supposed to be representing the interests of the policy owners who are selling the policies, Spitzer says.
Spitzer is seeking injunctive relief from the court, restitution and damages, and he says he has copies of electronic mail messages and other evidence showing that life settlement industry executives were aware of illegal conduct.
One example Spitzer cites involved a 79-year-old widower living in Hawaii who was selling a $400,000 policy. Copies of electronic mail show that a senior Coventry executive knew that a broker was “sitting on” a competing offer for the policy, Spitzer says.
Coventry also encourages brokers to take “gross offers,” or offers that “provided a separate financial incentive for brokers to convince their clients to take as little as possible for their insurance policies,” according to officials in Spitzer’s office.
In at least 200 cases, brokers received undisclosed commissions equal to 50% or more of what the seller received, officials say.
Coventry First has fired back with a statement contending that it has been one of the leaders in efforts to strengthen regulation of the life settlement market.