State District Court Judge Stephen Yelenosky has frozen the assets of Retirement Value LLC and appointed a receiver to take control of the New Braunfels company, which faces allegations of Texas securities fraud related to the sale of investments linked to death benefits from life insurance policies. The Texas State Securities Board, which has been conducting an undercover investigation into the company, requested the court order against the investment firm.
Retirement Value, its President Richard "Dick" Gray, and Chief Operating Officer Bruce Collins are defendants in the court action. According to the securities board, between April 2009 and February 2010 the company allegedly collected $65 million from more than 800 investors. The securities board also claims that investment firm told investors that the expected rate of return would be 16.5% payable upon maturity.
The claim contends that from the $65 million that the Retirement Value received from investors, $9.3 million was paid in commissions to unregistered sales agents. Meantime, Retirement Value, Gray and other principals in the company retained $8.4 million. Only $20.2 million was used to acquire the interests in the life insurance policies, while another third was set aside to acquire additional policies.
In March, the securities board issued an emergency cease-and-desist order telling Retirement Value to stop operations. The court’s ruling to freeze the assets requires that the judge believe it is likely that the Securities Board will succeed in demonstrating its claims. Eduardo Espinosa, of the Dallas office of the law firm K&L Gates has been appointed receiver of the company's assets.
Gray's Houston lawyer, Christopher Bebel, has said that the ruling "constitutes an absurdity" and that the securities board has no regulatory power over the sale of investment products such as those sold by Retirement Value. He also said that "the evidence will show that no wrongdoing has occurred" in the company's operations. "This is incredibly perplexing," Bebel said. "It seems clear the Texas State Securities Board is attempting to usurp the powers of the state legislature, and there is no precedent for this conduct.”
However, Houston Securities Attorney William Shepherd of Shepherd Smith Edwards and Kantas LLP, a Texas securities fraud law firm that represents investors, respectfully disagrees with Mr. Bebel. “The laws of Texas and most states hold that an investment is a security under the ‘family resemblance test,’ which is similar to the analogy of ‘looking like, walking like, and quacking like a duck’, or one that is seeking to make profit based solely on the actions of others. The threshold for coverage by securities laws is quite low and, in cases that our stockbroker fraud law firm is currently handling, it is clear that the securities laws apply to investors with insurance interests. The folks at the Texas Securities Board are quite competent and I am sure that they researched this issue carefully before filing the case. Texas Commissioner Denise Crawford is also President of the North American Securities Administrators Association (NASAA). Even if Mr. Bebel is correct and these are not securities (meaning the claims cannot be maintained by the Texas Securities Board) another party could step in and pursue the claims under a variety of other laws based on the alleged actions.” The receivership would then likely be continued.
When receivers are appointed, their general function is to seek to recover whatever assets can be found so that creditors are reimbursed and investors are compensated for their losses. Unfortunately, after expenses are paid only a fraction of the losses is usually recovered. “Our firm can represent clients to look beyond the reach of a receiver to other companies and individuals who sold or assisted in the sale of the investments to a particular investor,” states Shepherd.
Meantime, it is premature to comment on whether state officials will seek criminal charges in the case. According to securities board spokesman Robert Elder, "The key is full disclosure for investors, The risks and rewards and full details of any investment need to be explained, as well as the background of the individuals selling the investments. And we allege that wasn't done in this case."
Related Web Resources:
New Braunfels firm accused of securities fraud has assets frozen, Statesman.com, May 5, 2010
Judge Appoints Receiver to Take Control of 'Life Settlement' Company Targeted by State Securities Board, Texas State Securities Board
