Life settlements are not securities when only a single investor is involved, according to U.S. District Judge Michael Mason.

Mason made that interpretation in a ruling on a case filed in the U.S. District Court in Chicago.

Mason dismissed a claim by John Zang of Lexington, Mich.

Zang said Alliance Financial Services of Illinois had offered to use a package of life insurance settlements to finance his purchase of a business.

The deal fell through. Zang says Alliance declined to refund his $37,500 down payment. Zang sued, charging the firm with misstatements involving the sale of securities, according to court documents.

If life settlement contracts are be defined as securities, more than one investor must be involved in pooling the investments and in sharing in the profits, Mason says in a memorandum discussing his ruling.

Mason declined to dismiss other claims Zang made against Alliance, including an allegation of breach of fiduciary duty.

Zang and Allied Financial could not immediately be reached for comment.

In a written comment on the case, Daniel Passage and Trevor Lane, lawyers at O’Melvey & Myers L.L.P., San Francisco, say the U.S. Securities and Exchange Commission has recently issued guidance outlining when life settlements might be considered securities.

“Courts in other jurisdictions may not apply the same test or reach the same conclusions this court did when this issue is presented in other life settlements related transactions,” the lawyers say.