The Texas State Securities Board has issued an emergency cease-and-desist order against a life settlement firm and 2 of its executives for violating the state’s securities laws.
The parties to the order failed to properly register life insurance settlements it sold to as many as 800 investors and fraudulently represented the safety of the investments, according to the order.
The order, from Securities Commissioner Denise Voigt-Crawford, was issued against Retirement Value L.L.C., New Braunfels, Texas, its president and CEO Richard Gray, and its chief operating officer Bruce Collins.
According to the order from the board, Retirement Value said it expects to generate $100 million in revenue by the end of April from the 800 investors who were offered a share of life settlement policies secured by the firm.
The company represented to the investors that participating in its “resale life insurance policy program” would earn them an expected annual interest of 16.5%, according to the order, which the board served on the company’s principals Wednesday.
The company represented to clients that a $100,000 investment would yield almost $75,000 upon the investment’s maturity, based on the life expectancies of the individuals involved, the order stated.
The firm and its principals told investors that projected returns were based on accurate life expectancy estimates–telling investors, for example, that 95% of insureds die within the life expectancies estimated by its “totally objective” sources, the board order said.
“That kind of accuracy strains belief,” a board spokesman said.
One of Retirement Value’s life expectancy source cited in the order is Midwest Medical Review L.L.C., Hamilton, Ohio, whose CEO plead guilty in 2006 to manufacturing and shipping an experimental cancer vaccine that did not meet Food and Drug Administration requirements.
The 2006 indictment against the CEO, George Kindness, had originally contained 21 counts, including that Kindness had misrepresented that he was a medical doctor. At the time, Kindness was head of Amscot Medical Laboratories Inc., Cincinnati.
Retirement Value knew Kindness was indicted and convicted and knew he was not a doctor, the board spokesman said.
In an interview, Kindness said he was not an M.D. but that he did have a PhD in clinical science and a fellowship in clinical laboratory medicine.
He said Midwest Medical had never done work specifically for Retirement Value, although he acknowledged the firm “may have purchased some stuff we have underwritten.”
“We don’t buy or sell securities,” Kindness said. “We review medical records, and we create a life expectancy [projection.]“
He said Retirement Value’s CEO, Richard Gray “turned up on our doorstep” last year and asked to review its LE procedures.
“He never ever gave us any policies” to review, Kindness said of Gray.
The state security board’s cease-and-desist order charges that the life settlements offered by Retirement Value had not been properly registered as securities with the state.
Retirement Value, along with Gray and Collins, are “engaging in fraud in connection with the offer” of the settlements and are making “materially misleading” statements, the order states.
The order notes that in 2009 the Texas Department of Insurance sought to revoke Gray’s insurance license for fraud in selling around $3 million in life settlement investors while an agent for Secure Investment Services Inc., Redding, Calif.
To date, the DOI has not made a final decision on Gray’s license to sell insurance, according to the Texas Securities Board spokesman.
Calls to Gray seeking comment had not been returned at press time.