AIG, philanthropist trade lawsuits over 'life settlements' deal

Fri Sep 5, 2014 4:10pm EDT
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By Joseph Ax

NEW YORK (Reuters) - An American International Group Inc unit and a philanthropist traded lawsuits on Friday over a partnership gone sour involving billions of dollars in life insurance policies sold by elderly individuals in exchange for cash.

AIG's Lavastone Capital said in a lawsuit filed Friday in New York federal court that it had paid Coventry First of Fort Washington, Pennsylvania, more than $1 billion since 2006 to help it acquire the policies, known as "life settlements."

Coventry, whose chief executive is Philadelphia philanthropist Alan Buerger, is the "leader and creator" of the life settlement industry, according to its website. Investors who acquire a policy cover the premiums until the individual's death and then collect the payout.

Rather than identifying appropriate policies and selling them to Lavastone at the elderly individuals' asking price, the lawsuit claimed, Coventry used a network of shell companies to artificially inflate the prices to Lavastone. The fraud cost Lavastone more than $150 million, the lawsuit said.

"Thus, defendants' behavior is no different than an auction house that knows a bidder's maximum price ceiling and then uses 'shill bidders' associated with the auction house to fraudulently inflate the price to that bidder's maximum bid," the lawsuit said. It called Coventry and CEO Buerger "scam artists."

In a countersuit filed in New York state court a few hours later, Coventry accused Lavastone of breaching its exclusive contract with Coventry by allowing an affiliate to purchase life settlements from other businesses.

The lawsuit also claimed Lavastone "concocted" fraud allegations to escape contractual provisions that limit its ability to resell certain policies, which Coventry estimated could cost AIG $700 million.

"Their lawsuit is simply meant to get leverage to get rid of the contract provisions," Buerger said in an interview.   Continued...

A new sign is displayed over the entrance to the AIG headquarters offices in New York's financial district, January 9, 2013.  REUTERS/Brendan McDermid