Oklahoma Regulators Shut Down Alleged Viatical Scam

A.M. Best

John Hillman

January 9, 2004

OKLAHOMA CITY, Jan 05, 2004, (A. M. Best via COMTEX) -- Oklahoma Insurance Commissioner Carroll Fisher has revoked the license of a Shawnee, Okla.-based insurance agency amid allegations by the Oklahoma Department of Securities that it conducted a pyramid scheme selling viatical insurance settlements.

The licenses of Hickman Agency Inc., Merl William Hickman Sr. and Merl William Hickman Jr. were revoked following allegations that they sold viatical contracts to investors, but instead of investing in the contracts, used investors' money to pay interest to other investors as well as operating expenses, the insurance department said.

The agency allegedly was obtaining money from investors but had purchased no policies, as far as the department knows, said David Meuser, a spokesman for the Oklahoma Insurance Department. The insurance department acted after the Department of Securities moved against the agency, he said.

Viatical contracts are set up to provide access to the proceeds of life insurance policies for any policyholder with a terminal illness, with the proceeds used to pay medical expenses in many cases. Life settlements are also sales of life insurance policies, but they are for policyholders who are still healthy but might need additional funds for other purposes, or no longer need insurance to cover estate-related expenses. Viatical contracts are regulated by the insurance and securities departments in Oklahoma.

According to securities department documents, the Hickmans allegedly promised investors a 15% to 20% return on their investments, but instead of the income coming from investments as promised, the revenue came from new investors.

On Dec. 17, the securities department filed for a restraining order against the agency and its officers, freezing the agency's accounts and placing the agency in receivership, as well as requesting an injunction against the agency and officers to stop obtaining other investment money, according to court documents.

If the Hickmans were willing to treat their investors this way, it's not clear how would they treat consumers, Fisher said in a statement.

In late September, Irving Faught, administrator of the securities department, issued a warning that older investors are being targeted with increasingly complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements and Ponzi schemes, all promising inflated returns.

"Some phony investment products and the slick pitches of high returns used to sell them, sound tempting to many seniors who've seen their retirement accounts dwindle in recent years and who do not have the benefit of time to recoup their losses," Faught said in a statement.

Judge Douglas Combs in Pottawatomie County District Court issued a temporary restraining order against the Hickman Agency and placed it into receivership, the insurance department said. In addition to prohibiting the future sale of insurance policies, Fisher's order requires outstanding commissions owed to the Hickmans to be paid to the receivership, the department said. The Hickmans have 30 days in which to request a hearing on Fisher's order.

The life settlement industry evolved out of the viatical business, and its role in financial planning involves using insurance funds to provide for long-term care or retirement income. Advocates for the industry say it's an option people will need to know about as they age and their needs change. Some experts say life settlements are poised for growth into a multibillion-dollar industry by 2004 or 2005. Industry experts estimate annual life-settlement sales could hit $20 billion to $50 billion in face amounts within the next 10 years (BestWire, Dec. 2, 2002).

Copyright (C) 2004 A.M. Best