Ritchie Capital Management has filed a lawsuit against Coventry First for pervasive fraud in the secondary market for life insurance.

Coventry, in a statement, called the suit “a cheap publicity stunt” by Ritchie to divert attention from its own problems, which Coventry said include issues with the Securities and Exchange Commission and a significant withdrawal of capital by investors. Coventry said it would seek immediate dismissal with prejudice.

Ritchie’s complaint cites Coventry for alleged fraud, breach of fiduciary duty and breach of contract, and was filed in the Southern District Court of New York in Manhattan by attorney Thomas Puccio, legal counsel for Geneva, Ill.-based Ritchie Capital. The suit makes its allegations under the federal Racketeer Influenced and Corrupt Organizations Act, or RICO Act, which increases the penalties for acts committed as part of an ongoing criminal enterprise. If found guilty of violations under the RICO Act, Coventry would have to pay 3 times the $700 million that Ritchie Capital seeks in the complaint, or about $2 billion.

“This is one of the first lawsuits in the life settlements industry to expose companies like Coventry First that defrauded both policy owners and investors to maximize its profits,” said Puccio. “We intend to pursue Coventry First to the fullest extent of the law.”

According to Ritchie Capital, the company reached an agreement with Coventry in 2005 to invest in life insurance products. Ritchie said it had conducted due diligence but also relied on Coventry, based on its experience and reputation.

“Coventry First participated in numerous racketeering activities and fraud, such as bid rigging and concealing both unlawful conduct and an investigation by the Attorney General of New York, unbeknownst to Ritchie Capital,” added Puccio. “Had Ritchie Capital known that Coventry engaged in these illegal practices, it would have never done business with the company.”

In its statement, Coventry said it “has not committed fraud of any kind. Coventry has been and continues to be in full compliance with all agreements related to the Ritchie life settlement portfolio.”

Coventry said that Ritchie Capital was “well aware of the investigation by the New York attorney general” and “acknowledged in writing that its civil complaint against Coventry was not an event of default under any agreement between Coventry and Ritchie.”

Coventry also said it is a “significant investor” in Ritchie’s life settlement portfolio but is now “concerned” that the investment is at risk. “Coventry believes that this life settlement portfolio is a strong investment vehicle, though it has been compromised by a lack of liquidity due to the well-publicized problems of Ritchie Capital Management,” the company said.