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Senate approves limits on viatical regulation

Published April 28, 2004

TALLAHASSEE - The Florida Senate approved legislation Tuesday that would fundamentally rewrite oversight of the controversial viaticals industry, drawing sharp rebuke from state regulators.

The little-debated proposal was tucked into a mammoth financial services bill (SB 2994) at the behest of lobbyists working for Mutual Benefits Corp., a Fort Lauderdale firm that has come under regulatory scrutiny in Florida and elsewhere, and the industry group Viatical & Life Settlement Association. The bill still must be approved by the House.

Viatical products, an industry that gained momentum during the onset of the AIDS epidemic, involve the sale of an individual's life insurance policy to a third party.

The change would limit oversight of viatical products and the companies that sell them to the state insurance regulator, Kevin McCarty. And it could undermine inquiries under review by Florida's banking and securities regulator, Don Saxon, and chief financial officer Tom Gallagher.

Saxon said Tuesday a complaint prompted the agency to examine the records of First Liberty Group, a Clearwater company that sells Mutual Benefits' products.

Clifford Little, an attorney for First Liberty, said his company has not been told what the state is looking for and said First Liberty has had no role in lobbying for the change in state law.

Industry lobbyists, however, denied that pending inquiries influenced their push for the change.

Steve Ecenia, an attorney for the Viatical & Life Settlement Association, said the law change was warranted. "Everything the state needs to hold us accountable it can do under the insurance office," Ecenia said. "We don't think the Florida Legislature ever intended for us to be regulated by three offices."

But McCarty said state law doesn't give him enough discretion to regulate the viatical business.

Sometimes called "death futures," policy holders receive a discounted payout of their policy upfront from a viatical firm that assumes the payment of premiums and the benefits of the policy once the insured dies.

But state regulators across the country have grown more aggressive in recent years in regulating the second phase of the industry, when a viatical firm sells all or part of the eventual payout to investors.

State regulators consider those securities transactions, throwing them under a far different set of banking disclosure and regulatory rules than those that apply to insurance transactions. It's an interpretation the industry has sharply rejected.

So far, a Florida administrative judge, in an opinion that was allowed to stand by a state appeals court, supported the state regulators' interpretation that viatical products amounted to securities and could be regulated by Saxon, the banking regulator. The decision prompted Florida Senate staff in November to recommend that lawmakers make it clear in state statute that such transactions were securities. Three months ago, Colorado's securities regulator accused Mutual Benefits of misleading investors.

But Sen. Bill Posey, R-Rockledge, who offered the amendment on the Senate floor for the first time Monday, said such interpretations are overly broad and needed to be corrected by legislation. Otherwise, he said, regulators could create such a hostile environment that terminally ill Floridians might find no viatical firms left.

But Gallagher said the change would erode consumer protections in an industry rife with abuse.

"We have had hundreds of people ripped off by viatical companies that go bankrupt," Gallagher said. "Over the last six years, $660-million has been lost by investors."

- Times researcher Deirdre Morrow contributed to this report.

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