Amid growing scrutiny of life settlements securitization, the Securities and Exchange Commission has created a task force to examine financial products, according to The Wall Street Journal.
Amid growing scrutiny of life settlements securitization, the Securities and Exchange Commission has created a task force to examine financial products, according to The Wall Street Journal.
Specifically, the SEC is concerned with the securitization of life insurance policies that have been sold on the secondary market, as well as whether insured individuals and investors know what they are getting into, insiders told the newspaper.
Last month, Mary Schapiro, chairman of the SEC, asked her staff to create a task force that combines employees from the agency's enforcement, corporate-finance and trading-and-markets divisions, an insider told the Journal.
Reports of the SEC's interest in the packages of life settlements arrived on the heels of legislators' increased interest in the products. Rep. Paul E. Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, yesterday announced a Sept. 24 hearing to discuss the securitization of life settlements.
Ms. Schapiro's interest in the world of life settlements goes back as far as April, when she submitted a comment letter on the topic to Sen. Herb Kohl, D-Wis., chairman of the Senate Subcommittee on Aging. She noted that the SEC has jurisdiction over a transaction in which a senior sells a variable-life-insurance policy on the secondary market, as well as a case in which the senior uses the policy sale's proceeds to buy securities.
However, Ms. Schapiro noted that the investment side of a transaction can also be subject to SEC oversight.
“The second part of the transaction — the purchase of an interest in the life insurance policy or a pool of policies — can be structured in a variety of ways. But in many cases, this transaction will involve the sale of a security and thus be subject to the commission's jurisdiction,” Ms. Schapiro wrote in her April 28 letter to Mr. Kohl.
“Typically, the management activities and services provided by the party who arranges the life settlement and sells the interest to an investor will bring the transaction within the definition of an ‘investment contract,'” she wrote.
A call to the SEC seeking further comment wasn't immediately returned.
