LITIGATION UPDATE - INTRODUCTION
One of the Receiver’s duties is to pursue on behalf of LifeTime Capital and its investors claims against third parties. Consequently, over the course of the last two-and-a-half years, the Receiver has been engaged in litigation with a number of different people and entities. Pursuit of many of the claims has been difficult due in large part to the passage of time since LifeTime and its salespeople sold the viatical contracts investors purchased. Those sales were in the 1997 to early 2001 timeframe. The Receiver and his counsel have attempted to work efficiently given the amounts of potential recovery balanced against the potential costs of pursuing matters to trial. What follows are brief updates related to the different claims the Receiver has pursued. Though recoveries have not been substantial to this point, there has been some recovery and opportunities for further potential recoveries exist and are being pursued.
LITIGATION AGAINST DAVID SVETE AND RELATED CANADIAN PROCEEDINGS
As those people reading this likely know, David Svete was the instrumental figure in the LifeTime Capital business which lost so much money and led to the investor losses the Receiver has been and continues to work to mitigate. As a result of his conduct with LifeTime and its investors, Mr. Svete was indicted by a Federal Grand Jury in Florida, tried and ultimately convicted on a number of fraud-related criminal charges. Mr. Svete was sentenced to 16 2/3 years and is currently in Federal prison in Ohio. He has appealed his conviction.
As part of Mr. Svete’s sentence, he has been ordered to make restitution in the amount of $100,000,000. Additionally, the Receiver instituted civil lawsuits to pursue any assets Mr. Svete might have. Given Mr. Svete’s incarceration and other matters, the civil action has moved and will continue to move slowly. One lawsuit related to recovering LifeTime Capital assets taken by Mr. Svete, however, has proceeded for some period of time with an expectation that there will be an important decision made in late 2008. Specifically, there is evidence that Mr. Svete attempted to take approximately $3,000,000 of LifeTime Capital money out of the country. This money, along with other funds unrelated to Mr. Svete or LifeTime Capital, was seized by Canadian authorities for reasons unrelated to LifeTime. The matter is now before a Canadian Court with a number of parties, including the Receiver, claiming portions of the approximately $20,000,000 in seized assets. The Receiver is hopeful that he will receive a substantial portion of the $3,000,000 that is believed to have belonged to LifeTime Capital, though it will take more time before that matter is resolved in the Canadian courts.
Beyond the $3,000,000 in Canada, the extent of any other Svete assets is unknown but, as mentioned above, such assets, if identified, are subject to the Florida criminal Court’s restitution order.
LITIGATION AGAINST ED PEARSON
As many people reading this will know, another person extensively involved in the sale of LifeTime Capital viatical investments was Edmund (Ed) Pearson. In addition to being a salesperson, Mr. Pearson was President of the marketing entities that administered LifeTime Capital sales across the country. These entities were known at different times as A/C Financial, Alexander Chase or Wealth Strategies.
In 2006, Mr. Pearson pled guilty to criminal conduct unrelated to LifeTime Capital, though a somewhat similar venture. Mr. Pearson also, in response to the lawsuit filed against him by the Receiver, filed bankruptcy. At the present, the indications are that Mr. Pearson is without substantial assets. However, the proceedings against him continue in Federal Bankruptcy Court in Dayton, Ohio. His criminal sentence was a four year sanction.
LITIGATION AGAINST PEOPLE WHO SOLD LIFETIME VIATICAL CONTRACTS
In addition to Mr. Pearson, the Receiver filed suit in the Federal District Court in Dayton, Ohio, against a number of other persons and entities who sold LifeTime viatical contracts. The claims against these people and entities were, in essence, that they sold unregistered securities and failed to review the appropriateness of the investments for those they were selling to. There were also fraud claims asserted against some of these defendants.
As many people reading this will likely know, many people who sold LifeTime Capital investments also purchased them. In fact, many people sold only one or a few investments, all to their family members and/or themselves. Typically, upon proof that these people had not sold any extensive amounts of LifeTime Capital products to others, they were dismissed from the lawsuit.
Another large number of the sales people and entities that were sued by the Receiver settled the claims against them, though mostly for relatively modest amounts. Still many others were either never found or were found and then simply defaulted because they never responded to the claims against them. Of the remaining others, many filed motions to dismiss or similar motions, and over the course of the last year or so, many of these motions to dismiss were granted by the Court. A number of other claims need yet to be addressed in the trial court and when that process is finished, the court’s dismissal of claims will likely be appealed.
LITIGATION AGAINST DOCTORS WHO PROVIDED LIFE EXPECTANCY OPINIONS
Typically, when investors purchased investments from LifeTime Capital, they would receive a copy of a life expectancy document, purportedly signed by a doctor and providing that doctor’s opinion concerning how long the insured person related to an investment would live. These life expectancies were a substantial factor in the investment decisions made by many investors but, as we now know, were substantially wrong.
There were three Dayton, Ohio, area doctors who provided life expectancy opinions to LifeTime Capital through a related company, Medical Underwriting. Those doctors were sued by the Receiver with the claims against them being, in essence, that they were negligent or fraudulent in providing the opinions they did. The doctors responded to the claims against them by denying that they were negligent or fraudulent and also asserting that they were unaware that their opinions were being shared with LifeTime Capital investors or anyone outside of Medical Underwriting. They also argued that their opinions were manipulated and/or their signatures forged on a number of documents, a claim that appeared true based upon the evidence presented at the criminal trial of David Svete.
In addition to the concerns about the doctor’s defenses, there were concerns about whether the claims against them were barred by statutes of limitations and questions concerning whether the doctors had the financial ability to pay a large amount of money if they were to lose at a trial. Additionally, it was clear that pursuing the litigation to trial against the doctors would cost a substantial amount of money. Given all of these considerations, the Receiver and his counsel decided it best to accept a modest settlement payment from the doctors ($20,000 each) in return for dismissing the claims against them. The Receiver and others received a number of calls from investors and others unhappy with the relatively small amount of the doctors’ settlements. Though the Receiver and his counsel appreciate those sentiments, they firmly concluded that the prospects for a more significant recovery were outweighed by the certainty of the substantial costs that would have been incurred pursuing the claims further.
LITIGATION AGAINST U.S. BANK (pka FirsStar Bank and Star Bank)
Typically, when investors purchased investments from LifeTime Capital, their money would go into certain accounts maintained by LifeTime Capital’s bank which is now known as US Bank. The money deposited would go into different accounts depending upon what the money was to be used for. For example, some money would go into what was known as a Policy Purchase Account which pooled investor money together for purposes of buying life insurance policies from third parties. Other money went into what was known as the Premium Payment Account which was meant to hold money needed to pay the premiums on the life insurance policies that investors had invested in.
The Receiver believes that US Bank was negligent in its handling of LifeTime Capital investor money in that it allowed David Svete and others to take money from those accounts in violation of the purposes of the accounts. For example, in late 2001, Mr. Svete directed that approximately $1.9M be taken from the Premium Reserve Account and directed, ultimately, to him.
The Receiver filed a lawsuit against US Bank in Federal Court in Dayton, Ohio. In response to the lawsuit, US Bank argued that the litigation was required to be arbitrated rather than handled in the Court. Ultimately, the Court agreed and has directed that the claims against US Bank be arbitrated. That arbitration is expected to occur in the Spring of 2008.