The receiver for a failed Ontario-based life settlements firm is in the process of seizing the firm’s assets, including a condo in the Bahamas, a Maserati, a couple of luxury watches and millions in cash in offshore accounts. Those accounts, set up by New Life Capi-tal Corp., may also be subject to a police investigation.

According to court documents, KPMG Inc., which was appointed receiver for New Life Capital and other related companies by the Ontario Superior Court of Justice at the end of 2008, advised the Royal Canadian Mounted Police of the alleged misappropriation of about US$7.1 million in offshore funds. KPMG has offered to assist with recovery of the funds, although the RCMP is mum on any investigation.

The ongoing unwinding of New Life is one of two long stories concerning ill-fated life settlements companies registered in Ontario. Also at the end of 2008, Ernst & Young Inc. was appointed as monitor for Universal Settlements International Inc., which is further along in the process of potentially paying back claimants. Hundreds of former Canadian and international investors have applied for compensation in the USI case. Average claims are about $60,000.

The accounting firms are in the process of unwinding companies that traded in life settlements, a little-known industry in Canada.

Life settlements companies effectively trade in a secondary market of life insurance policies. They buy up contracts from life insurance policyholders at a discount to the death benefit but for more than the cash surrender value. This puts additional funds in the hands of policyholders who believe they are likely to die soon. The buyers make a profit by continuing to pay the premiums and ultimately collecting the full death benefit.

Life settlements firms sometimes re-sell policies to individuals, but more commonly they sell fractional shares of many policies to multiple investors who achieve a diversified portfolio — similar in some ways to a mutual fund but with holdings in life insurance policies. Investors, in turn, get a slice of potential income completely unrelated to securities markets.

In the case of New Life, in 2008 the Ontario Securities Commission shut the firm down, alleging that its executives had sold securities to unqualified investors without proper registration to sell the securities and without a preliminary prospectus.

The OSC also alleges that New Life’s directors, Jeffrey Pogachar and Paola Lombardi, who are spouses, spent more than $600,000 of investors’ money.

KMPG, as the receivers for New Life, are trying to realize gains on some of the policies for investors and creditors, but it’s a long process that is fraught with difficulties.

Insurance policy manufacturers don’t like the life settlements business. The insurance companies make money when policyholders pay premiums for years and then stop paying, either because they can’t afford to or through neglect, and then the contracts to pay out large benefits lapse. Life settlements firms, however, buy the policies and pay the premiums, so insurers are always on the hook for the benefits.

Massachusetts Mutual Life Insurance Co. , for instance, was trying to sue not only an original policyholder and New Life, but also KPMG, New LIfe’s receiver. At the end of March, KMPG told an Ontario court that it had reached a settlement with Mass Mutual, which had filed the motion with the U.S. District Court in New York. Court documents say the complaint contained “serious allegations against the insured and certain relatives of the insured, including misrepresentation and fraud in connection with the application for coverage and subsequent transaction with New Life.”

KPMG has received permission from the Ontario court to complete the transaction — the details of which haven’t been disclosed — and notes that it could reach a settlement with Mass Mutual on another, similar policy.

KPMG also has obtained court orders to seize properties owned by New Life. Along with the cash and the Maserati, the receiver has permission from the court to gain access and seize a piece of riverfront property in Fort Erie, Ont. KPMG has already recovered a couple of Ferraris and a condo in the Bahamas.

The big-ticket item, however, is cash transferred from New Life to Lexington Consulting Inc. , of the Bahamas, and into bank accounts in FirstCaribbean International Bank (Bahamas) Ltd. Pogachar and Lombardi also own Lexington.