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| Lincoln National Life Insurance Company and An Insurance Broker Sued In Federal Court Arising From Securities Violations Claims Over Sales of STOLI Polices. |
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| Jun 08, 2010 |
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Lincoln Financial Group, an affiliate of Lincoln National Life Insurance Company, and an insurance broker were sued in the Northern District Federal Court today involving securities exchange act and fraud violations for financial losses arising from the offer, sale, and issuance of stranger-owned (or speculation-initiated) life insurance policies (STOLIs) that are similar to viatical settlements. STOLIs are outlawed in essentially every state because they violate insurable interest laws as the owner of the policies essentially owns a policy usually for millions of dollars on the life of a stranger.
A STOLI scheme involves outside investors who effectively wager on when an insured person will die. In a typical transaction, an investor entices someone, usually a senior citizen, to take out a multimillion-dollar life insurance policy. Investors purchase the policy and pay the premiums, making themselves the beneficiaries. In return, the insured person receives an upfront cut of the eventual death payout.
In S.E.C. v Mutual Benefits, the Southern District of Florida held that viatical settlement investment contracts are securities within the meaning of the Securities Exchange Act of 1934. Currently, there is litigation in Indiana surrounding the drowning of a woman who had a $15 million STOLI issued on her life. See story here. An insurance broker in Florida was also charged with fraud involving STOLIs. See story here.
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