Law360 publishes a regular series of articles about lawyers’ unusual or interesting experiences. Last month, the publication ran a piece entitled “My Strangest Day In Court: The Life Partners Bankruptcy”, by Texas attorney Joseph Wielebinski. Among his observations were the following:
In 1992, Life Partners Inc. (LPI) began developing a multilevel marketing network to sell a life insurance derivative known as a ‘viatical.’ . . . .
These life insurance products essentially pit investors against life insurance companies. The investors fund the purchase of a life insurance policy from the insured, and then hope that the insured dies soon (or at least not longer than their estimated life expectancy). If that happens, then the investors collect the death benefit after paying only a few premiums. In reality, the only time that this worked was in the AIDS epidemic of the late 1980s, when young males could purchase cheap life insurance without a medical exam.
Insurance carriers soon became wise to this scheme. But, LPI and those working with them turned to the investing public, promising that they had identified insureds who had only a short time to live, and promising big returns if the investors funded the purchase of the policy. The incredible part is that, when the insureds did not die as projected, many investors stuck with the investment and continued to pay premiums year after year, thinking that the fabled early maturity was just around the corner. . . .
In February 2015, I stood before the bankruptcy court representing the unsecured creditors (investors) committee . . .
The bankruptcy courtroom was filled with interested investors. They hung on every argument, and every word of testimony. But, when LPI management made its arguments, which was largely directed to arguing that the allegedly fraudulent business model worked just fine, they cheered. It felt like a one-sided football game … and the judge (being sympathetic to the investors’ plight and their inexperience with bankruptcy) was not inclined to stop them.
Concluded Attorney Wielebinski: Some investors “did not want to hear that they had been defrauded. Many of them still don’t. Perhaps it is a form of “Stockholm syndrome.”
The article is available here.