A federal court held that life settlements were securities under federal and Illinois law.  As such, certain sellers violated the securities laws when they lied about having done due diligence.  The court also found that a reasonable jury could conclude that the sellers violated the Illinois Consumer Fraud Act.  See Giger v. Ashmann (ND Ill).

The defendant sold a life settlement product, that is, the purchase by a third party of the right to pay premiums on a life insurance policy, receiving in return the death benefit.  The plaintiff demanded rescission of the $2.1 million that he had invested.  He filed an action in 2009, alleging violations of the antifraud provisions of the Exchange Act, and violations of Illinois common law, the Illinois securities laws, and the Illinois Consumer Fraud and Deceptive Business Practices Act.

The court noted that other courts have found that life settlements were securities even when the promoter’s activities were primarily pre-purchase, and the fact that the settlements were bonded did not change the court’s conclusion that they were securities.

The life settlement market has consistently been under attack by private plaintiffs and regulators.