A particularly troubling feature of the Sidecars policy is one method by which it guarantees a return of the deficiency between one's total EB-5 investment and any repayment of principal by the regional center.
According to the same English and Chinese-language sales presentation confirming that the Blackhawk Gold project is the only one eligible for the Project Performance Investment Reimbursement insurance, the $35,000 premium paid to Sidecars by an EB-5 investor is ceded to another company ? USSafe Reinsurance Company ? which then purchases fractional ownership in life settlement policies from Life Partners, Inc.
Life Partners Holdings (LPHI) is one of the only publicly-traded companies specializing in the sale of life settlements ? life insurance policies that are sold when the insured no longer needs them. Investors purchase fractional ownership in the policies and collect when the policy matures (i.e. the policyholder dies).
Unfortunately, Life Partners does not have what one would call a stellar reputation in the industry. A Wall Street Journal investigation last year determined that the company frequently underestimates the life expectancies of individuals in whom its customers invest. "In 2003, of 299 policies the firm brokered, the insured as of a year ago had lived past the Life Partners life expectancy in 279 instances," according to the Journal.
That investigation came after a Securities & Exchange Commission task force asked Congress to make life settlement transactions subject to federal securities law. The SEC recommendation came in light of "a number of successful actions alleging fraud in connection with life-settlement securities," many of which had to do with misrepresentation of life expectancy data to investors.
Just this month, Life Partners received a Wells notice from the SEC indicating impending civil charges to be filed against the company and two of its executives in relation to life expectancy estimates.
On June 6, the company received an updated Wells notice indicating that its CFO would also be included among those charged.
Any potential Idaho gold mine investors who were exposed to the Sidecars sales presentation were informed that the investor insurance policy "provides a 1-to-1 equity ratio" of premiums to claims. That assertion rests on the assumption that any life settlement policies purchased from Life Partners will "mature" by the time an investor files a claim.
And any projected maturity dates for the life settlement policies must be based on Life Partners life expectancy estimates, which the SEC finds questionable.
Given that Gary Tharp, the "EB-5 Liaison" at Sidecars Insurance, participated in a seminar last year promoting the gold mine project alongside Idaho Governor Butch Otter, it would be hard to deny any connection between the Sidecars policy and the Idaho State Regional Center. After all, "the Blackhawk Gold EB-5 projects" are the only ones USSafe Reinsurance company is willing to insure.
An independent translator was able to confirm that Gary Tharp, Governor Otter, and Brian Dickens of the Idaho Department of Commerce spoke at the event, which included an overview of the insurance program.
EB5info.com contacted Sima Muroff at the Idaho State Regional Center with regard to the Sidecars policy offered to his project's investors. He declined to comment on the sales presentation, noting that it was not authored by the regional center or its legal counsel. Muroff also stated that the regional center and its projects "have no relationship with insurance."
Gary Tharp likewise told EB5info.com that the "Idaho State Regional Center has no direct relationship with Sidecars Insurance Company or the Sidecars Insurance program for EB-5 investors."
These investors put their money in what Tharp calls an "excess risk program." Assuming all investors buy insurance, the total risk exposure for the EB-5 investment is $60 million. While Tharp realizes that not all investors in Idaho's gold mine project will buy the insurance, he maintains that Sidecars would have the assets to pay claims even if every investor did purchase a policy.
In other words, if an investor does not trust a Life Partners life settlement to pay claims on his or her purchase of a Sidecars insurance policy, he or she can opt for a version of the policy that taps claims reserves funded by outside investors who have no connection to the EB-5 program.
Tharp also told EB5info.com that he still believes the life settlement policies are a reliable source of funds for the investor counting on the Sidecars promise of 1-to-1 premium to claims reserves. The option to have claims paid via an alternative funding source comes "in light of the negative publicity" received by the Life Partners life settlement program, he said.
Continue reading the final installment of our series.