December 15, 2013

Trinity Settlement Seeks Court Review of Securities Issue

Philadelphia partner Steve Baker and associates Kate Villanueva, Nolan Tully and Thomas Mueller were noted in a Deal Pipeline article titled, “Trinity Settlement Seeks Court Review of Securities Issue.” The team published a secondary market alert on November 20, titled, “Texas Supreme Court Petitioned to Review Allegedly Improper Characterization of Life Settlements as Securities,” which discussed the case.

Trinity Settlement Services LLC, which wanted to start selling fractional interests in life settlements several years ago, filed its petition with the court on Nov. 15 to overturn a decision by the 3rd District Court of Appeals in Austin. The appellate court ruling in August had affirmed a district court's decision from 2010.

Trinity had sued the Texas State Securities Board and TSSB Commissioner John Morgan seeking an opinion that they acted without authority in filing an enforcement action against another life settlement company, Retirement Value LLC. Trinity also had asked for a ruling saying that the percentage interests in life insurance policies it proposed to sell were not securities under the Texas Securities Act.

The Dallas-based company had been planning to raise money for a business offering fractional interests in policies when Texas securities regulators issued a cease-and-desist order against Retirement Value, which had a similar program.

Ultimately, the securities board shut down Retirement Value of New Braunfels, Texas, alleging it had sold unregistered securities. The firm obtained about $77.6 million from more than 900 noteholders and now is in receivership.

The 3rd District Court of Appeals affirmed the lower court's decision holding that Trinity's claims were not ripe for adjudication and that the company had impermissibly filed suit to seek an advisory opinion from the court. Trinity's claims against the TSSB and Morgan also failed.

A decision by the TSSB on whether to bring an enforcement action against Trinity would depend on many things that have not yet occurred, including whether it chose to begin selling settlements, how they were structured, managerial efforts by Trinity and what type of investors bought the policies, the court said.

“Trinity's claim does not pose a pure question of law but instead asks the trial court to engage in a fact-based determination based upon contingent, hypothetical facts,” the ruling stated.

In their alert, Steve, Kate, Nolan and Thomas noted, “The Texas 5th District ruling that policies sold by Life Partners are securities differs from decisions by the Waco Court of Appeals in 2004 and the U.S. Court of Appeals for the District of Columbia in 1996.” In both those cases, policies sold by Life Partners were found not to be securities.

To read the article, click here.

To read the secondary market alert, click here.

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