The Securities and Exchange Commission has charged a California investment firm with fraud and securities violations surrounding investments tied to life insurance policy death benefits.
The SEC alleges Pacific West
Capital Group Inc., based in Los Angeles, and its owner, Andrew B. Calhoun IV, a Beverly Hills life-insurance agent, misled clients about investments in so-called life settlements. In those vehicles, an investor buys a share of a life insurance policy and later receives part of the death benefit.
In its
claim filed in U.S. District Court for the Central District of California, the SEC said that since 2004, Pacific West and Mr. Calhoun raised nearly $100 million from more than 3,200 investors who purchased life settlements in 125 life insurance policies.
Since 2012, the SEC asserts Pacific West and Mr. Calhoun used the proceeds from the sale of new life settlements to pay the premiums on life settlements sold in previous years. They hid from investors the reality that the life insurance policy holders were living longer than expected, drawing down Pacific West's premium reserves.
“Investors are entitled to fair disclosures about the risks associated with their investments,” Michelle Wein Layne, director of the SEC's Los Angeles Regional Office, said in a statement. “We allege that Pacific West and [Mr.] Calhoun did the opposite here by hiding and minimizing those risks in order to sell more life settlements.”
The SEC said Pacific West glossed over the risks associated with life settlement investments. The firm said the life settlement policies would mature in four to seven years and pay a return of 100% to 150%. It also said it never drew on premium reserves or made a premium call to investors.
“Since at least 2012, Pacific West and [Mr.] Calhoun have misrepresented the risks that investors would have to make future, out-of-pocket payments to keep the policies in force, and failed to disclose material information about the increased amount of future premiums,” the SEC stated in its complaint.
The SEC is seeking an injunction against Pacific West, which is not registered with the agency, and Mr. Calhoun, and also is trying to recover fraudulent gains and civil penalties. The SEC also charged PWCG Trust of Ohio, which held the insurance policies, and five Pacific West sales agents.
Jason S. Lewis, a lawyer for the defendants, was not immediately available for comment.
