Viatical Investments – Information for Issuers and Securities and Insurance Agents

Issued and entered October 22, 2002 by Frank M. Fitzgerald, Commissioner of Financial and Insurance Services 
 

Questions have arisen regarding whether a viatical investment (also known as an investment in a viatical, senior, or life settlement contract) is a “security” and thus subject to the provisions of the Michigan Uniform Securities Act, 1964 PA 265, as amended, MCL 451.501 et seq.; (the “Act”).

Section 401(z) of the Act states that a security includes any contractual or quasi-contractual arrangement pursuant to which all of the following apply:

1. A person furnishes capital, other than services, to an issuer;
2. A portion of that capital is subjected to the risks of the issuer’s enterprise;
3. The furnishing of that capital is induced by representations of an issuer, promoter, or their affiliates that give rise to a reasonable understanding that a valuable tangible benefit will accrue to the person furnishing the capital as a result of the operation of the enterprise;
4. The person furnishing the capital does not intend to be actively involved in the management of the enterprise in a meaningful way; and,
5. A promoter or its affiliates anticipate, at the time the capital is furnished, that financial gain may be realized as a result thereof.

It is the position of the Office of Financial and Insurance Services (OFIS) that a viatical investment meets the above criteria. For that reason, a person offering and/or selling a viatical investment must be registered under Section 201 of the Act. As a security, a viatical investment needs to be a registered securities offering or offered and sold under an appropriate exemption from registration. Any issuance of a viatical investment must comply with the provisions of Sections 101 and 301 of the Act.

Pursuant to section 408 of the Act, OFIS may impose a civil penalty of not more than $1,000.00 for each violation of the act, not to exceed a total of $10,000.00; and take other appropriate enforcement actions such as revocation of exemption, cease and desist orders, and revocation of registration. Pursuant to section 409, a person who willfully violates certain provisions of the Act shall upon conviction be fined not more than $25,000.00 for each violation, or imprisoned for not more than 10 years, or both.

Insurance agents should not rely on a viatical company’s representation that a viatical product is not a security. An insurance agent found guilty of a violation of the Act may have his or her insurance license revoked, be liable financially for the transaction, be subject to other regulatory sanctions, and be subject to criminal prosecution.

A person who has a question regarding the registration or exemption from registration of a viatical investment under the Act or regarding registration as a securities broker-dealer or securities agent under the Act should contact the Conduct Review and Securities Division of OFIS.

Office of Financial and Insurance Services
611 West Ottawa Street
P.O. Box 30701
Lansing, Michigan 48909-8701

Toll Free Telephone: (877) 999-6442