SEC v. LIFE PARTNERS, INC.: AN EXTENDED INTERPRETATION OF THE HOWEY TEST FINDS THAT VIATICAL SETTLEMENTS ARE INVESTMENT CONTRACTS

I. INTRODUCTION The district court, in SEC v. Life Partners, Inc. ( Life Partners or LPI ), correctly stated that: "at issue is an unusual investment medium that rests within the grey area of securities law." 1 However, the court's finding that "viatical settlements" 2 are investment contracts, and therefore covered by the registration and disclosure requirements of the Securities Act of 1933 (Securities Act), 3 does little to change the color of the transaction. What was once covered by "blue-sky" laws 4 is now covered by dark clouds, as the district court rains on LPI's parade and on the rest of the viatical settlement industry. The district court's opinion, issued in response to an action by the SEC seeking a preliminary injunction against LPI, concluded that LPI's brokered viatical settlement contracts are investment contracts. 5 Although the court's opinion briefly detailed a variety of considerations, it failed to apply the proper focus on such issues as policy and context. The impact of this decision could be devastating to viators if, as a result of the decision, viatical settlement companies leave the industry to avoid having to comply with the SEC's cumbersome registration and disclosure requirements. This comment provides a brief background on the Securities Act of 1933 followed by a review of the evolution of the Howey test, the test currently used to determine if a transaction involves an "investment contract" within the meaning of the Securities Act. 6 The ...