The collapse of Life Partners, which sold shares in life insurance policies on the elderly and the ill, doesn’t fit neatly under bankruptcy law, which requires a judge distribute assets equally among creditor classes, Bloomberg News reported yesterday. “How can someone wrap things up and bring it to a conclusion if there are still scores of policies outstanding because insureds have not passed away?” said Christopher Bebel, a former Securities and Exchange Commission attorney. The investment vehicles, blandly labeled life settlements but known more bluntly as death bonds, first appeared in the late 1980s, when they were called viaticals. They became popular among AIDS patients who needed cash for medical expenses and elderly clients seeking money for end-of-life care. Life Partners, founded in 1991, sold stakes in policies with a face value of $2.4 billion. Its clients were individuals, but the $35 billion market has also attracted asset managers like Fortress Investment Group LLC and insurers such as American International Group Inc. Life Partners relied on an expert to estimate life expectancies, a key factor in the price investors would pay. The identity of the insured, or any other fractional investors in the policy, would usually remain secret. A Texas jury found that the company had low-balled mortality estimates in a lawsuit filed by the Securities and Exchange Commission. Unwilling to pay a $46 million judgment, the Waco-based company filed for bankruptcy Jan. 20.
