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Attorney General Abbott Charges Death Benefits Broker With Investor Fraud; $22 Million in Assets Frozen Retirement Value, L.L.C. and owner charged with marketing unregistered securities and selling investments through unregistered brokers

AUSTIN – Texas Attorney General Greg Abbott today charged Retirement Value, L.L.C., and two of its executives with violating state securities laws, defrauding Texas investors, and failing to properly disclose material investment information – including securities regulators’ recent enforcement actions against the company’s president.

To help preserve investor funds, the attorney general obtained a court order freezing $22 million in investor assets that were previously under the defendants’ control. Court documents filed by the state in Travis County District Court also requested that the court appoint a receiver, who has now assumed legal control over Retirement Value and any assets previously under its control. 

The state’s enforcement action, which names New Braunfels-based Retirement Value, Chief Operations Officer Bruce Collins and President Richard Gray, stems from an investigation and referral by the State Securities Board. 

All three defendants are charged with unlawfully using unregistered sales agents, marketing unregistered securities and overstating investors’ potential return on investment. Under Texas law, securities that are marketed or sold in the state must be registered with the Securities Board unless they are specifically exempt from registration – as is the case with federally registered securities. A registration requirement also applies to non-exempt sales agents who market securities in the State of Texas. 

Retirement Value’s unlawful scheme revolved around its efforts to securitize and market life insurance policies. According to investigators with the State Securities Board, the defendants bought life insurance policies from insured individuals, who received up-front payments in exchange for assigning their policy’s death benefits to the company. As the owner of those policies, Retirement Value securitized and marketed them as investments. Investors who purchased Retirement Value’s securities were promised a “baseline expected interest” of 16.5 percent. 

Under the defendant’s plan, investors would realize a return on investment – in the form of 16.5 percent interest payments – after the death of an individual who sold their policy to Retirement Value. Between April 2009 and February 2010, Retirement Value is estimated to have collected as much as $65 million from investors. 

According to investigators with the State Securities Board, the defendants mischaracterized the nature of their securities and unlawfully made false statements in an effort to entice investors. Evidence obtained by Securities Board investigators indicates that the defendants mischaracterized actuarial data, including life expectancy estimates. For example, the defendants told investors that 98.5 percent of insured individuals die within one year of their estimated life span. In reality, that statistic is false because legitimate actuarial projections put the same figure at 55 to 75 months – not 12 months. 

Fabricating actuarial data harmed Retirement Value investors because their investments were predicated upon realizing a return – in this case 16.5 percent interest payments – once an insured individual died and their life insurance policies were paid. In addition to misleading investors about the likely timeframe within which they would earn interest, Retirement Value also failed to reveal the financial consequences associated with an insured individual exceeding their life expectancy. If an insured did not die within 24 months of their calculated life expectancy, Retirement Value investors were required to contribute additional resources to fund the insured’s life insurance premiums – or lose their entire investment. 

Court documents filed by the state also indicate that the defendants failed to disclose material information about their own questionable business background. Defendant Gray and companies associated with him have been the subject of regulatory enforcement actions by multiple oversight agencies, including the U.S. Securities and Exchange Commission, the Texas Department of Insurance and the Texas State Securities Board.  

Of the amount thus far collected from investors, state investigators believe the defendants paid $9.3 million to its unregistered agents and retained $8.4 million in profit. Records also show the defendants allocated more than $21 million in order to acquire life insurance policies and establish future premium payments based on insureds’ life expectancies, plus two years.

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