Securities and Exchange Commission v. Life Partners, Inc.

Life Partners, Inc. (defendant) sold fractional interests in insurance policies (known as viatical settlements) on the lives of the terminally ill. Life Partners would screen the insureds before investors purchased the viatical settlements. Life Partners’ sole postinvestment service with respect to the viatical settlements was to collect and distribute insurance proceeds. The Securities and Exchange Commission (SEC) (plaintiff) brought suit, arguing that the viatical settlements were securities under the Securities Act of 1933. The district court agreed with the SEC, but, after Life Partners appealed, a panel of the United States Court of Appeals for the District of Columbia Circuit (DC Circuit) reversed. The SEC petitioned for rehearing en banc, arguing that the panel’s decision (1) established an artificial bright-line rule rendering irrelevant all prepurchase services provided by a seller in determining whether an investment was a security and (2) called into question whether the federal securities laws apply to asset-backed securities like mortgages. In support of its petition, the SEC cited several cases in which courts considered the sellers’ prepurchase activities in deciding whether something was a security. The DC Circuit denied the petition per curiam. Judge Ginsburg issued a statement respecting the denial of en banc review.