Spitzer Files Complaint Against Pa.-Based Coventry First LLC
ALBANY, N.Y., October 27 – A civil complaint was filed against life settlement industry leader Coventry First LLC, based in Philadelphia, Pa., on October 26 in State Supreme Court in Manhattan by Attorney General Eliot Spitzer. The complaint alleges that the industry leader made secret payments, dubbed co-brokering fees, to life settlement brokers, the Allsettled Group, based in New York City. In exchange for these payments, the brokers suppressed competitive bids from other life settlement companies, violating New Yorks antitrust statutes and inducing brokers to commit fraud.
The suit seeks injunctive relief from the court, restitution, and appropriate damages from Coventry
Spitzer said the conduct outlined in the complaint showed a dramatic lack of ethical standards in the new industry, which cries out for greater regulatory scrutiny. According to Spitzer, the life settlements industry has tripled in size during the last three years, and now accounts for more than $6 billion in revenues.
According to Marc Violette, a spokesperson for the Attorney General, the suit was filed against Coventry because it is a top leader in the life settlements industry. Violette stated, In our office, when were looking at bringing a certain amount of oversight and transparency to a section of an industry, we typically start with the industry leader. Try to get them to adopt better business practices and then work down from there. Coventry is a very big player in that industry. We thought, Well, if we start there with the top, then we can influence the industry as a whole.
Violette continued, saying, If the lawsuit is successful, it will bring much needed clarity, transparency, and a higher level of fairness to life settlement transactions. And that will benefit consumers, not only in New York, but around the country.
Spitzers office began investigating the life settlements industry in 2005 after receiving a tip that brokers were accepting secret commissions that unfairly reduced the amount of money policyholders received for their policies.
Regulating the Life Settlement Industry
According to Andy Mais, spokesman for the New York State Insurance Department, regulation of the life settlement industry would be of tremendous benefit to state consumers. Under current law, only viatical settlements can be regulated by the department.
Legislation sponsored by Senator John A. DeFrancisco (R-Onondaga) and Assemblyman Alexander B. Grannis (D/L-New York) (S-5476, A-8785) seeks to introduce conflict of interest rules, including rules prohibiting lenders who finance policies from unduly profiting from the resale of those policies. The legislation would require that all policyholders be provided with adequate consumer notifications and disclosures, and that there is no oversight of the secondary market. In addition, the law would impose new anti-fraud provisions that will help identify, prosecute, and stop fraudulent activity, increasing protections for consumers as well as life insurance companies.
The bill is currently in the Insurance Committee and was last acted upon January 4, 2006.