Opinion ID: 720633
Heading Depth: 2
Heading Rank: 3

Heading: The LPI Program for IRA Investments in Viatical Settlements

Text: 64 Finally, we must resolve the question, which the district court did not reach, whether the notes issued under the company's IRA program might be securities even though the underlying fractional interests in viatical settlements are not. In brief, the program is structured as follows: LPI establishes a separate trust for each investor's IRA; the trust borrows money from the IRA and issues a non-recourse note in exchange. The trust uses the loan proceeds to invest in a viatical contract, the death benefits of which collateralize the note. When the death benefits are ultimately paid, the trust distributes them to the IRA in satisfaction of the note. 65 The SEC urges that we decide whether the notes are securities by application of the family resemblance test of Reves v. Ernst & Young, 494 U.S. 56, 65, 110 S.Ct. 945, 951, 108 L.Ed.2d 47 (1990), pursuant to which a note is deemed to be a security unless it resembles one of a list of instruments that are not securities. Because we have already determined, however, that the underlying viatical contracts are not securities, and because the essential characteristics of the investment are no different whether the purchaser is an IRA or an individual investor, the status of the notes under the 1933 Act does not require extended analysis. 66 The note is used in these transactions, as the SEC itself affirms in its brief, merely in order to navigate around certain restrictions [318 U.S.App.D.C. 315] in the tax code that preclude IRAs from investing in life insurance contracts. If the individual who owns the IRA wants to invest the IRA's capital in a viatical settlement, then the note is nothing more than a device by which to make that investment in a form that complies with the tax code; use of the note does not alter the substance of the transaction in any manner that would suggest a role for the securities laws that is not otherwise indicated by law. In this we follow directly the teaching of the Supreme Court: [I]n searching for the meaning and scope of the word 'security' in the Act, form should be disregarded for substance and the emphasis should be on economic reality. Tcherepnin, 389 U.S. at 336, 88 S.Ct. at 553. Applying this precept, we hold that the notes--like the viatical contracts for which they stand--are not securities.