I found this article when I was searching for more Life Settlement News. It is mainly about money laundering but then discusses a little a bit about a life settlement scenario.
The problem with this article is that his numbers do not make any sense at all. An $8 million life insurance policy selling for $4 million, then a life settlement company buying it for $6 million, and then an investor buying an $8 million dollar policy for $8 million. Even it is a paid up policy there is not return on investment. Also unless this is the case of a viatical, there is no way they are selling for that price. Life Settlements are usually 10 to 40 percent of the face value. Article is below, feel free to post your comments as well.
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A banking lawyer who spent two years in US federal prison in the early 1990s following a racketeering conviction told a Cayman conference this week that failing hedge funds are fertile ground for money launderers.
Kenneth Rijock now earns his living as a financial crime consultant for the banking industry helping spot questionable investments before cash from those schemes enters the financial system.
“I’m afraid of hedge funds,” Mr. Rijock told the Global Compliance Solutions conference at the Marriott Resort on Monday.
“If I’m a money launderer, I’m going to look for some hedge funds that are very distressed and maybe even about to go under,” Mr. Rijock said. “And I’m going to be the angel, the saviour. I’m going to come in there and say that I represent some South African investor, or some other well contrived story.”
“I’m going to put enough cash in (the fund) so that the manager can refund money, knowing that I’m not going to get a huge amount of due diligence (in determining where that money came from).”
“(Bank compliance officers) should understand, if you have a hedge fund you’re working with, and all of a sudden they have a major problem and then later, a huge influx in capital I’d sure like to know what the source of funds is on that.”
Mr. Rijock said there’s been a lot of international press lately on problems with the US sub-prime lending market which has affected hedge fund investments. However, he said there are other investments hedge funds make in what are usually called “traded life or life settlement” policies which he considers equally troubling.
“It’s part of the reason why (hedge funds) are failing,” Mr. Rijock said.
To help explain those types of investments, he set out a fictitious scenario for conference attendees. In that scenario, the retiring vice president of a prominent US automaker decides he doesn’t want to keep the $8 million key employee insurance policy his company had on him because the premium payments are too high.
The $8 million policy in Mr. Rijock’s scenario is sold to an insurance broker for $4 million. The broker turns around and sells it to a life settlement company for $6 million, who in turn sells it to an investor for $8 million.
“Hedge funds have been buying up these policies, because they know the returns are so high,” Mr. Rijock said. “The problem is, that some of the companies are marginally unethical and they play with these (life settlement policy) figures. They modify and alter some of these items, and some of these companies are just fraudsters.”
“So you have a bunch of hedge funds (that) are holding assets which are not performing. This is fertile ground for some money launderer to get in there.”
Mr. Rijock listed failing hedge funds among the new areas which those seeking to launder money from illicit drug sales or other illegal activities may use to hide their profits.
Source: Cay Compass
Life Settlement Info and Life Settlement Magazine are both working on life settlement hedge fund pieces, keep checking back.
