NY Attorney-General Claims Coventry Has Defrauded Life Insurance Holders

Eliot Spitzer, the Attorney-General of New York, has accused Pennsylvania firm, Coventry First LLC, of organizing a scheme to defraud life insurance holders. Coventry First LLC is a unit of Montgomery Capital Inc. It buys life insurance from policyholders, taking the chance that the payout will be more than the cost of keeping the life insurance cover. Spitzer has claimed that Coventry was making undisclosed payments to brokers organizing the auctions, asking them to reduce bids from other buyers and suppress higher offers. Spitzer says the payments are often called 'co-brokering fees'.

Spitzer also alleges that Coventry has used fraudulent business practices, including hiding fees from customers and falsifying records. Spitzer says the company has anticompetitive behaviour and that it has violated New York law.

Coventry buys the policies for institutional investors. Two of its clients include AIG and Citigroup. Coventry says the owners they purchase policies from are "affluent and financially sophisticated people" and that the majority of them are represented by counsel or financial planners. They include billionaires from the Forbes 400 and executives from corporations and investment banks.

The reason that holders sell their policies is so either to get a payout now or because they do not want to pay premiums any longer. The investors make the premium payments and, in return, collect the death benefit after the insured person has died. Usually, the policies are bought from elderly people.

Eliot Spitzer has filed a suit in the State Supreme Court in Manhattan. It is supported by company e-mails, with details of nine cases where Coventry allegedly paid other companies not to bid on the policies that they wanted to buy. The lawsuit claims that customers received a lot less money (in some cases, hundreds of thousands of dollars less) for their policies than they would have received under different circumstances. Coventry says the suit is based on emails that have been taken out of context.

The suit is part of Spitzer's investigation into the insurance industry. The investigation has been going on for two years and has been looking at sales and accounting practices. So far, there have been settlements of $3 billion paid as a result of this investigation, with companies that include American International Groups Inc. and Marsh & McLennan.

The "life settlements" industry is now worth more than $6 billion in revenue, tripling in size in the past three years.