Opinion ID: 4527348
Heading Depth: 3
Heading Rank: 1

Heading: Formation of the Trust

Text: In 2004, the Securities and Exchange Commission filed an enforcement action against Mutual Benefits for fraudulently selling fractional investment interests in viaticated life insurance policies. 1 The administration and management of these Mutual Benefits policies were put into receivership by the district court. Investors who purchased the policies had the option of retaining their investments or directing the court-appointed receiver to sell their interests. The policies retained by investors are referred to as the “Keep Policies.” In 2009, the district court entered an Order (1) authorizing the creation of the Trust, subject to the terms of the Mutual Benefits Keep Policy Trust Agreement (the “Trust Agreement”); (2) appointing Mukamal as Trustee; (3) authorizing the sale of the business of Viatical Services, Inc. to Litai; and (4) approving an agreement between the Trustee and Litai (the “Servicing Agreement”), pursuant to which Litai serviced the continued administration of the insurance policies for the Trust’s benefit. The court also transferred ownership of the Keep Policies to the Trustee and authorized 1 “A viatical settlement is a transaction in which a terminally ill insured sells the benefits of his life insurance policy to a third party in return for a lump-sum cash payment equal to a percentage of the policy’s face value. The purchaser of the viatical settlement realizes a profit if, when the insured dies, the policy benefits paid are greater than the purchase price, adjusted for time value.” SEC v. Mut. Benefits Corp., 408 F.3d 737, 738 (11th Cir. 2005). 3 Case: 19-11447 Date Filed: 04/21/2020 Page: 4 of 12 the Trustee to sell the interests in policies in which investors had failed to pay premium and administration fees. Acheron initially bought fractional interests in the Keep Policies from the receiver. It continued to do so after the policies were transferred to the Trustee. As of the dates relevant to this appeal, Acheron had paid more than $45 million to purchase interests in the Keep Policies and held more than 60% of the face policy value of all the Keep Policies held in the Trust. Acheron says that if it had not made the purchases, the Keep Policies would have been at risk of lapsing for nonpayment of premiums. Thus, Acheron “provides a valuable benefit to the Trust by (1) purchasing interests in Keep Policies that were otherwise subject to lapsing and (2) providing funds (i.e., the purchase price for the Keep Policies) to fund the administration of the Trust.” Acheron Br. at 6.