Lawsuit Highlights Regulatory Risks of Stranger-Originated Life Insurance
Shelly Pechter Himmelrich, daughter of Jack Herbert Pechter, has filed a lawsuit against Jade Mountain Partners, an investment firm based in White Plains, New York. This legal action, brought before the U.S. District Court in White Plains, seeks $12.5 million in damages. The lawsuit alleges that Jade Mountain Partners invested in a stranger-originated life insurance policy (STOLI), issued in Pechter’s name and focused on regulatory compliance requirements.
STOLI policies involve third-party investors who profit from life insurance policies without a direct insurable interest. These policies gained traction in the early 2000s when institutional investors started purchasing and pooling them into tax-exempt entities for sale. Life settlement companies often targeted individuals with significant death benefits, using AI-driven underwriting to calculate profitability based on the insured's estimated life expectancy. Original policyholders received immediate payouts, while buyers took over premium payments, benefiting upon the policyholder's death.
The lawsuit details that a $12.5 million policy was taken out on Pechter's life in 2006, allegedly lacking a legal insurable interest as required by industry standards. Originated by Coventry, the policy reportedly involved concealed financial arrangements. Coventry is claimed to have paid the premiums, turning the policy into a financial speculation vehicle rather than a legitimate insurance instrument.
The questioned policy eventually found its way to the secondary market, landing with Cremello Investments D L.P., managed by Jade Mountain. The complaint asserts that both Cremello and Jade Mountain should have acknowledged the policy's non-compliance with insurable interest laws, pointing to a potential breach of regulatory compliance requirements in risk management.
Jack Pechter, a Holocaust survivor, passed away at 89 last year, and Cremello Investments collected the policy's death benefit. Acting for Pechter's estate, Shelly Himmelrich claims the investment firm engaged in an unauthorized gamble on Pechter’s life, thus seeking compensation for the policy value. This case highlights the regulatory risks and compliance challenges associated with STOLI policies.
As per their most recent investment adviser report, Jade Mountain Partners manages assets totaling $822.6 million. Despite requests for comments regarding the lawsuit, the firm has remained silent on the matter. This serves as a critical reminder for life insurance providers and payers of the importance of adhering to insurable interest laws to avoid legal and reputational risks.