Life settlement investors’ proposed lawsuit alleges British regulator’s warning cost them millions in investments

by Eric Pearson

A group of British life settlement investors is planning to file a class action lawsuit against a UK financial regulatory agency whose actions they allege may have cost them millions in investments. The proposed lawsuit by the Life Settlements Action Group against Britain’s Financial Services Authority involves nearly 2,700 investors and nearly $900 million in life settlement investments.

The Life Settlements Action Group alleges that in November 2011, the Financial Services Authority (now known as the Financial Conduct Authority) issued a warning that life settlement investments held in the EEA Life Settlements fund were “toxic.” As a result of this warning, the Group alleges, many retail investors became worried and decided withdraw their money from life settlements funds, forcing EEA to suspend the fund due to a flood of withdrawal requests.

In a statement issued on November 28, 2011, the Financial Services Authority stated that “high risk, toxic products that are generally unsuitable for the majority of UK retail investors and should therefore not be promoted to them.” EEA’s value plummeted in the wake of the statement due to the “unprecedented” number of withdrawal requests made in the two days that followed.

According to a statement by the Life Settlements Action Group, investors should be compensated for losses that followed the FSA’s warning about life settlements because of the “inflammatory” nature of the financial regulator’s warning:

“In using inflammatory and inaccurate language to describe Life Settlement funds, the FSA deliberately utilised a linguistic ‘sledgehammer’ when more measured and accurate terminology would have sufficed. If, in the common good, it had been reasonable to restrict the qualified human rights of these investors, they should have been compensated.”

The Life Settlements Action Group (also known as the Action Group for Life Settlement Fund Investors) will allege that the millions lost by EEA investors were directly tied to the FSA’s warning about life settlements. According to an estimate by the accounting firm Ernst and Young, the EEA fund’s value has fallen by about $100 million since the FSA warning.

Peter Lihou, a leading investors with the Life Settlements Action Group, stated that “the actions of the then FSA constituted unprofessional behavior and a serious failing in the regulator’s duty of care towards investors.”

Laws Concerning Life Settlements May Affect Investors

The effect of the FSA’s warning about life settlements shows the significant impact that financial regulators and securities laws can have on these investments and the individuals or groups who purchase an interest in them.

In the United States, state laws regarding “stranger-originated life insurance” or “STOLI” policies can have a significant impact on the value of life settlements. STOLI policies are life insurance plans which are purchased by funds from a third party with no insurable interest in the policy. Many U.S. states have laws prohibiting STOLI insurance.

In some cases, life insurance companies have tried to void the life insurance policies connected to life settlement investments by alleging that they were STOLI policies. When life insurance companies are able to successfully have life settlements voided through STOLI allegations, it can cost investors and life settlement providers millions in investments.

Heygood, Orr & Pearson and Life Settlement Lawsuits

Heygood, Orr & Pearson has filed several lawsuits on behalf of individual investors who were charged excessive amounts to cover premium payments on their investments or who were misled by a life settlement company about the value of their investments. Our firm has also filed lawsuits on behalf of life settlement companies in cases where an insurance company refused to pay the death benefits on a policy because it claimed that it was a STOLI policy. We have also filed litigation on behalf of life settlement brokers who negotiated the sale of these investments.

If you or your company were the victim of wrongful actions involving the sale or purchase of life settlement investments, you may be able to file a lawsuit to recover some or all of your losses. The first step to filing a lawsuit is to speak with a law firm that has the knowledge and experience with life settlement litigation to achieve the best possible result in your case.

For a free legal consultation to find out if you may qualify to file a lawsuit, contact the lawyers at Heygood, Orr & Pearson by calling our toll-free hotline at 1-877-446-9001. You can also reach us by filling out the free case evaluation form located on this page, and one of our representatives will be in touch with you as soon as possible.

by Eric Pearson

Eric Pearson is a licensed attorney and a partner at HO&P who handles commercial and personal injury lawsuits. Eric has been selected to the Super Lawyers List, a Thomson Reuters publication.