Investors denied judgment in failed viatical scheme

Group thwarted by ‘fraud, new medical developments and [policy sellers] not dying according to the expected schedule’

May 19, 2009 @ 3:15 pm

By Darla Mercado

The Nebraska Supreme Court Friday ruled against a group of investors that tried to muscle a state guaranty association into paying about $1 million for the group’s failed viatical investments.

A group of 26 Nebraska residents, led by Tex R. Harvey, invested in viatical settlements through broker Future First Financial Group of Ponte Vedra Beach, Fla., entering into purchase request agreements that required them to be named as beneficiaries of life insurance policies on the lives of others.

These viatical settlements involved the sale of an infirm or elderly person’s life insurance policy to an investor in return for a lump sum of cash. The investor, who pays the policy’s premium for the duration of the insured’s life, collects on the death benefit.

Future First fell on hard times in 2002 when the state’s securities and insurance regulators hit a group of its top executives with charges of racketeering, securities fraud and grand theft.

The firm later collapsed as a result of “fraud, new medical developments and [policy sellers] not dying according to the expected schedule,” according to court documents.

The firm later had its settlements provider license revoked by the Florida insurance department and fell under judicial conservatorship.

In the Nebraska case, the investors raised the question of whether their investment losses were indeed covered by the state’s guaranty association — Nebraska’s backup fund that is intended to protect the state’s insurance consumers in the event of a carrier’s insolvency.

The state’s Supreme Court found that Future First never paid into Nebraska’s guaranty fund, nor was it ever licensed to do business there, meaning that the company isn’t a “member insurer” and its purchase request agreements aren’t covered by the state’s fund.

Furthermore, though Future First was supposed to name the investors as beneficiaries of the life policies in the purchase request agreements, none of these individuals were designated as such, according to court documents.

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