OFIS Also Announces Elimination of $2 Certification Fee

(LANSING) - Michigan Office of Financial and Insurance Services (OFIS) Commissioner Frank M. Fitzgerald today reminded Michigan insurance agents that securities registration is necessary to sell viatical and promissory note products.

"Michigan insurance agents are being solicited to sell investments in viatical settlement contracts and promissory notes," commented Fitzgerald. "Some promoters are claiming that these investments are not securities and, therefore, compliance with securities law is not required. In fact, both viaticals and promissory notes are securities under Michigan law."

Agents or persons seeking more information on the proper registration of viaticals, promissory notes and other securities products should call the Office of Financial and Insurance Services toll free at (877) 999-6442.

Viaticals - Viaticals are arrangements between the owner of an insurance policy (the viator) and a third party (the provider). The provider negotiates with the viator for the purchase of his/her life insurance policy or the beneficiary rights under that policy. The broker then solicits funds from investors. The funds are used to complete the viator - provider purchase. Solicitors of viatical arrangements sometimes claim that these investments are not securities based on a federal court decision commonly referred to as the Life Partners case. This decision is not binding on state securities regulators and many states and legal scholars disagree with the decision.

Someone selling viaticals in Michigan without a securities registration violates Michigan law. Agents should not rely on the viatical company to determine whether the investments are securities. Agents are responsible for knowing if investment products are securities and for ensuring that any sale of a security is in compliance with Michigan law. Violation of Michigan securities law can be punishable by revocation of any existing insurance licensure, financial liability for the transaction, regulatory sanctions and criminal prosecution.

Viatical arrangements can also be subject to issues of suitability and fraud. As with any investments, agents are responsible for taking into consideration such factors as age, financial situation and investment objectives of the client. In addition, some viatical settlements are being sold in a way that is misleading with regard to the safety of the investment and the return that can be expected. Making misleading statements in the offer and sale of a security constitutes fraud. Failure to do consider suitability or any fraudulent actions may be subject to civil, administrative or criminal liability.

Promissory Notes - Promissory notes are investments that typically involve a loan to a company made by an investor in exchange for a fixed amount of periodic income. Licensed insurance agents are sometimes lured by promoters with a promise of high commissions to sell promissory notes. The offer and sale of promissory notes constitutes a securities transaction in which registration of both the product and the agent is required in Michigan. The fact that the investment is guaranteed, or secured, or covered by a surety or performance bond does not exclude the product from the definition of a security. In Michigan, it is unlawful to offer or sell a security without proper registration. Selling promissory notes or failure to register the note as an individual offering may result in criminal or administrative sanctions or penalties.

Certification Fee - The licensing section of the Office of Financial and Insurance Services was previously required to charge a $2.00 "certification of records" ee. This fee was charged for issuing insurance agent certifications, licensing histories, duplicate licenses and clearance letters. New legislation (PA 252) eliminated the language that referred to this fee in Section 240(1)(j) of the Insurance Code and no fee will be charged to obtain that information.