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Michigan Viaticals Subject to Securities Regs

Wed, 12/13/2000 - 1:00am — Karen Stevenson
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Michigan Office of Financial and Insurance Services (OFIS) Commissioner Frank M. Fitzgerald issued a bulletin reminding Michigan insurance agents that securities registration is necessary to sell viatical and promissory note products. He noted that some promoters are claiming that these investments are not securities, but both viaticals and promissory notes are securities under Michigan law.

Viaticals are arrangements between the owner of an insurance policy (the viator) and a third party (the provider). The provider negotiates with the viator for the purchase of his/her life insurance policy or the beneficiary rights under that policy. The broker then solicits funds from investors to purchase the policies. Older people sometimes sell life insurance policies to viatical brokers in order to get funds they need to pay for long term care costs. Older people are also often targeted as prospective purchasers of viatical products as investments.

The Commission warns agents and consumers that anyone selling viaticals in Michigan without a securities registration violates Michigan law. Agents should not rely on the viatical company to determine whether the investments are securities. Agents are responsible for knowing if investment products are securities and for ensuring that any sale of a security is in compliance with Michigan law. Violation of Michigan securities law can be punishable by revocation of any existing insurance licensure, financial liability for the transaction, regulatory sanctions and criminal prosecution.

Viatical arrangements can also be subject to issues of suitability and fraud. As with any investments, agents are responsible for taking into consideration such factors as age, financial situation and investment objectives of the client. In addition, some viatical settlements are being sold in a way that is misleading with regard to the safety of the investment and the return that can be expected. Making misleading statements in the offer and sale of a security constitutes fraud. Failure to do consider suitability or any fraudulent actions may be subject to civil, administrative or criminal liability.

Agents or persons seeking more information on the proper registration of viaticals, promissory notes and other securities products should call the Office of Financial and Insurance Services toll free at 877-999-6442.

Michigan Office of Financial and Insurance Services (OFIS) Commissioner Frank M. Fitzgerald issued a bulletin reminding Michigan insurance agents that securities registration is necessary to sell viatical and promissory note products. He noted that some promoters are claiming that these investments are not securities, but both viaticals and promissory notes are securities under Michigan law.

Viaticals are arrangements between the owner of an insurance policy (the viator) and a third party (the provider). The provider negotiates with the viator for the purchase of his/her life insurance policy or the beneficiary rights under that policy. The broker then solicits funds from investors to purchase the policies. Older people sometimes sell life insurance policies to viatical brokers in order to get funds they need to pay for long term care costs. Older people are also often targeted as prospective purchasers of viatical products as investments.

The Commission warns agents and consumers that anyone selling viaticals in Michigan without a securities registration violates Michigan law. Agents should not rely on the viatical company to determine whether the investments are securities. Agents are responsible for knowing if investment products are securities and for ensuring that any sale of a security is in compliance with Michigan law. Violation of Michigan securities law can be punishable by revocation of any existing insurance licensure, financial liability for the transaction, regulatory sanctions and criminal prosecution.

Viatical arrangements can also be subject to issues of suitability and fraud. As with any investments, agents are responsible for taking into consideration such factors as age, financial situation and investment objectives of the client. In addition, some viatical settlements are being sold in a way that is misleading with regard to the safety of the investment and the return that can be expected. Making misleading statements in the offer and sale of a security constitutes fraud. Failure to do consider suitability or any fraudulent actions may be subject to civil, administrative or criminal liability.

Agents or persons seeking more information on the proper registration of viaticals, promissory notes and other securities products should call the Office of Financial and Insurance Services toll free at 877-999-6442.