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A company claiming to be the creator of the secondary market for life insurance policies in the US has filed a law suit against suspended 'death bond' fund EEA Life Settlements.
Coventry Capital, founded by Philadelphia-based philanthropists Alan and Constance Buerger, has alleged that EEA thwarted its efforts to buy the portfolio of life settlements following a ‘pattern of fraudulent, bad faith conduct’.
In a document submitted to the United States District Court Southern District of New York, Coventry said that it had reached a definitive agreement to acquire EEA’s portfolio for $204 million (£155 million).
However, it claimed that EEA, its lead contract negotiator Vincent Piscaer and senior official Hiren Patel undermined the negotiations in an effort to continue collecting fees. According to the document,
EEA has charged investors over $228 million in valuation-based fees, charges and other expenses over the years.
EEA Life Settlements, which buys second-hand life insurance policies from Americans in ill health and in need of money, has had a run of problems. In 2011 it had to suspend redemptions following a wave of withdrawal requests after the then Financial Services Authority branded life settlement funds like EEA as ‘toxic’ investments.
When it was suspended, the fund held policies valued at $955 million. Since then it has been returning cash to investors with the latest amount to be distributed around $54.5 million. The portfolio has approximately 133 life insurance policies with net death benefits of around $459 million.
Coventry Capital also claimed that it learned certain policies within the EEA portfolio were priced using fraudulent medical records. The company said EEA used the potential sale as a way to appease investors and the regulator, but claimed it had no intention of completing it.
Coventry is therefore suing all defendants for fraud and intentional misrepresentation, EEA for breach of contract, and Patel and Piscaer for aiding and abetting fraud.
EEA said in a statement: ‘Whilst it is not our practice to comment on active litigation matters, EEA Life Settlements and Messrs. Piscaer and Patel do want to make clear that they categorically reject the allegations in the complaint.
‘They are of the view that the complaint is simply a tool being used by Coventry Capital to attempt to negotiate through litigation, to secure a price which is believed to be too low.
‘They will respond as appropriate in due course and look forward to vindication of their actions.’
EEA Investors’ Group, which represents unit holders in the fund, has written to the Guernsey Financial Services Commission asking for it to suspend the licence of the fund manager and commission an independent enquiry into its operation since inception.
A few years ago Coventry itself was the subject of a lawsuit when American International Group sought $2 billion in damages after accusing the former of overcharging it for life insurance policies. The firm settled with AIG in February 2016.