The Securities and Exchange Commission today charged Los Angeles-based Pacific West Capital Group Inc. and its owner Andrew B. Calhoun IV with fraud in the sale of “life settlement” investments.
Life settlements are securities structured around when life insurance policies “mature” after the insured individual dies and benefits are paid. Life settlement investors purchase an interest in a life insurance policy and in exchange receive a share of the death benefit.
The SEC’s complaint alleges that since 2004, Pacific West and Calhoun, a Beverly Hills-based life insurance agent, have raised nearly $100 million from life settlement investors. Since at least 2012, Pacific West and Calhoun allegedly defrauded investors by using proceeds from the sale of new life settlements to continue funding life settlement investments sold years earlier. Pacific West and Calhoun did not disclose this practice to investors and undertook it to make life settlement investments appear successful when, in fact, Pacific West had used up the primary reserves to pay premiums on those policies.
According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Pacific West and Calhoun made false and misleading statements about the risks of investing in life settlements, including the risk of investors having to make increased premium payments as insured individuals lived longer than Pacific West and Calhoun anticipated. Pacific West and Calhoun also allegedly misled investors about annual returns and have falsely represented to investors that their investments had nothing to do with Pacific West’s efforts and fortunes.
“Investors are entitled to fair disclosures about the risks associated with their investments,” said Michele Wein Layne, Director of SEC’s Los Angeles Regional Office. “We allege that Pacific West and Calhoun did the opposite here by hiding and minimizing those risks in order to sell more life settlements.”
The SEC’s complaint charges Pacific West and Calhoun with violating the antifraud, securities registration, and broker-dealer registration provisions of the federal securities laws. Also named as defendants are Ohio-based PWCG Trust, which held and serviced the insurance policies, and five sales agents of Pacific West: Brenda C. Barry of Issaquah, Wash., and her company BAK West, Andrew B. Calhoun Jr. of Anderson, S.C., Eric C. Cannon of Lakewood, Calif., and his company Century Point, and Michael W. Dotta and Caleb A. Moody, both of Los Angeles.
PWCG Trust and the sales agents are charged with violating the securities registration provisions, and the sales agents also are charged with broker-dealer registration violations. The SEC’s complaint seeks permanent injunctions against all defendants and the return of allegedly ill-gotten gains with interest and penalties from Pacific West, Calhoun, and the sales agents.
The SEC’s investigation was conducted by Todd Brilliant, Dora Zaldivar, Kelly Bowers, and Robert Conrrad. The SEC’s litigation will be led by John Bulgozdy and Kristin Escalante.