Life Partners products ruled securities by Texas Appeals Court

(Bloomberg) — Life Partners Inc.’s life settlement policies should be regulated under state securities laws, a Texas appeals court said, reversing a lower court that found the policies didn’t qualify.

A three-judge appellate panel in Austin yesterday sided with a Dallas appeals court, which ruled in August that the company’s insurance-related products qualified as “investment contracts” subject to oversight by Texas securities regulators.

Life Partners buys rights to death benefits from policyholders in exchange for lump-sum payments, generating revenue on the split between what the company pays for policies it acquires and what it charges investors for their interests.

Texas accused parent company Life Partners Holdings Inc. and several affiliates of engaging in fraud in connection with the sale of securities. The state is seeking an injunction blocking the sale of the life-settlement policies to Texans.

Life Partners argued that state court judges should be guided by a 1996 federal court decision and a 2004 ruling by a different state appellate court in Waco. Rulings in both cases declared the company’s life settlement products weren’t securities.

‘Not securities’

“Two appellate courts have previously ruled that LPI’s life settlements are not securities, and we continue to believe that those are the better-reasoned authorities,” company attorney Douglas Alexander said in an emailed statement. He said the company will appeal to the Texas Supreme Court.

Life Partners Holdings, which fell as low as $2.70 on the news, closed yesterday at $2.98, a 5 percent decline, in Nasdaq Stock Market trading.

The Dallas appellate court last year “discussed how many courts from other states have determined that these types of products constitute securities and that more recent federal cases have disagreed with” the 1996 federal decision Life Partners relied upon, Justice David Puryear in Austin said in yesterday’s ruling.