The receiver for new Life Corp., an Ontario-based life-settlements company, is in the process of selling off about US$7 million in secured assets in an effort to repay creditors and some 600 Canadian investors in the failed firm.

Provincial court documents released in August show that the Toronto office of KPMG Inc. has agreed to sell investment property, including a derelict house in Fort Erie, Ont., and two Ferraris and a Maserati that are priced at less than $1 million combined. KPMG is asking for the court’s approval to go ahead with the sale.

It’s the latest in the bizarre case of New Life, which was involved in buying and reselling U.S. life insurance policies.

Each piece of New Life property was ultimately related to its principals, Canadians Jeffrey Pogachar and Paola Lombardi, who are spouses. KPMG, which also traced an account holding about US$1 million in Bahamanian government bonds, is also trying to sell a condo in Paradise Islands in the Bahamas and a couple of luxury watches previously owned by the couple but traced and seized by KPMG.

Pogachar and Lombardi bought all these assets for about US$7 million, but KPMG notes that it doesn’t necessarily expect to be able to sell the assets at their full valuation.

In 2008, the Ontario Securities Commission shut down New Life, alleging that its principals had sold securities to unqualified investors without proper registration and without a preliminary prospectus. The OSC also alleges that Lombardi and Pogachar spent more than $600,000 of investors’ money.

Separately, the OSC case was brought before an Ontario court and KPMG was appointed receiver. KPMG has been trying to unravel New Life and its related businesses — and to pay off investors and creditors — for about two years.

New Life was engaged in selling life settlements, effectively a secondary market for life insurance policies, which is a big business in the U.S. Such firms buy up contracts from life insurance policyholders at a discount to the death benefit but for more than the cash surrender value. Selling a policy puts funds in the hands of the former policyholder, who doesn’t need the policy any longer — sometimes because he or she believes they are about to die. The buyer makes a profit by assuming the premiums but ultimately collecting the full death benefit.
@page_break@Life settlements companies such as New Life sometimes resell policies to individuals; but more commonly, they sell fractional shares of many policies to multiple investors looking for a diversified portfolio of life insurance policies — 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.

Based on documents KPMG filed with the courts, New Life had raised funds to invest in two companies: the New Life Capital Investments Program and the Capital Advantage Program, which were incorporated in Ontario. Says a KPMG report: “Through various subsidiaries, New Life promoted itself as offering investment and wealth preservation opportunities.”

New Life sold about $22 million worth of Class A shares in NLC Investments to investors for what it called the “Investments Program” and used some of those funds to buy 22 life insurance policies with a face value of US$83 million. New Life also raised about $638,000 through the sale of preferred shares in Capital Advantage and related businesses.

KPMG has let one of the policies lapse, but it retains the remaining ones and about $US1.5 million in cash deposits.

Although life settlements are big business in the U.S., the insurance industry is regulated provincially in Canada and the resale of policies is restricted in most provinces and territories — with the exception of Quebec, Nova Scotia, New Brunswick and Saskatchewan.

Frank Zinatelli, legal counsel for Canadian Life and Health Insurance Association Inc., says the CLHIA would like to see life settlements activity banned across the country but doesn’t actively lobby against it because there’s virtually no life settlements activity in Canada anyway.

He points to numerous cases of fraud by both life settlement companies and policyholders in the U.S. that make the practice unsavoury. Moreover, he argues, advance benefit features in many products today give consumers the same benefit as a life settlement.

Earlier this summer, New Life had asked the court to settle with Massachusetts Mutual Life Insurance Co. , which was trying to sue not only an original policyholder and New Life but also KPMG.

In March and June, KPMG told an Ontario court that it had reached a settlement with Mass Mutual, which had filed a motion with the U.S. District Court in New York. KPMG’s reports to the court 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.”

Pogachar and Lombardi have since fled Canada and are not co-operating with KPMG — although one court document notes that Pogachar’s father was given access to the Fort Erie property to pick up some equipment he had left there.

Earlier this year, KPMG had contacted the RCMP about New Life, offering co-operation; but the police are mum on any investigation. IE