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SEC Charges Texas Pair for Misleading Elderly & Retired Investors in Life Settlements

On May 11, the U.S. Securities and Exchange Commission filed a civil lawsuit in Texas against two insurance salesman accused of illegally selling “life settlements” to more than two dozen investors, many of them elderly and retired. Life settlements are fractional interests investors purchase in the death benefits payable under a life insurance policy. While life settlements are legal, they are considered “investment contracts” by the SEC, meaning they must be registered as securities. Life Settlements are complicated investments and, like all investments, must be suitable based on an investor’s investment objectives and risk tolerance.

SEC v. Novinger

The defendants in this case, Christopher A. Novinger and Brady J. Speers, were not registered securities brokers. But in 2012, a representative of Conestoga International LLC—a Puerto Rico-based dealer in life settlements—approached the two about selling the company’s investments as independent contractors. Novinger and Speers subsequently formed their own company to sell life settlements from Conestoga and another company under the name Novers Financial. Novers received a commission for each life settlement sold.

According to the SEC’s complaint, Novinger and Speers actively misled investors in their marketing materials. Novers “falsely described the life settlement interests they offered as guaranteed, safe as a CD, and federally-insured with an annual return of 7% to 9%.” None of this is true. To the contrary, life settlements are a high-risk investment with no annual or guaranteed returns of any kind. The investment only pays off after the insured person dies, and any profit is dependent on whether the death benefit exceeds the total premiums paid to keep the policy in effect.

The SEC said Novinger and Speers also “falsely represented themselves as experienced financial professionals with a specialized expertise in life settlements.” In fact, the SEC said, they have little if any training in marketing securities. Nonetheless, they hosted a weekly radio show in Dallas-Fort Worth to promote themselves as “retirement experts.”

Altogether, the SEC said at least 26 Texas investors purchased over $4.3 million in life settlements from Novers. In some cases, the SEC said Novinger and Speers lied about the net worth of their investors in order to skirt federal securities regulations. As noted above, life settlements normally must be registered as securities. But there is an exception for securities sold to “accredited investors,” that is, individuals whose net worth exceeds $1 million.

Novers tried to exploit this exemption, the SEC said, by giving some of its clients a “net worth calculator” that “improperly inflated investors’ assets.” Basically, Novers told clients to include the projected future value of their Social Security and other retirement benefits—for the next 20 years—as part of their current net worth. In one case, the SEC said a couple worth only $263,000 invested nearly $50,000 in life settlements after Novers “calculator” said their net worth was over $1.5 million.

Watching Out For Slick Marketing Pitches

As always, an SEC complaint is merely a statement of charges, and everyone is presumed innocent until a court of law determines otherwise. Still, this case provides a useful warning to investors, especially the elderly and those who are retired and living on a fixed income, about falling for slick salesman and their marketing materials pitching unfamiliar financial products. Life settlements are a legitimate investment, but they require a certain degree of knowledge and sophistication before a purchase. They are not a conservative investment.

If you have been induced to purchasing a financial product through false or misleading statements or advertising or if you are concerned about a questionable investment you have made and need legal advice on how to proceed, contact Florida securities fraud attorney Gregory Tendrich, P.A., today.

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