††††† 808 KAR 10:410. Life settlement investments.
††††† RELATES TO: KRS 292.331, 292.340, 292.370, 292.380, 292.390, 292.410(1)(i), 292.430
††††† STATUTORY AUTHORITY: KRS 292.370(2)(r), 292.410(1)(i), 292.500(1), (3)
††††† NECESSITY, FUNCTION, AND CONFORMITY: KRS 292.500(3) authorizes the commissioner of the Department of Financial Institutions to promulgate administrative regulations necessary to carry out the provisions of KRS Chapter 292. This administrative regulation establishes the requirements for registration of life settlement investments and for registration of an agent selling life settlement investments.
††††† Section 1. Definitions. (1) "Life settlement contract" is defined by KRS 304.15-020(17).
††††† (2) "Life settlement investment'' is defined by KRS 292.310(22).
††††† (3) "Life settlement policy" means a life insurance policy that has been acquired by a life settlement provider under a life settlement contract.
††††† (4) "Life settlement provider" is defined by KRS 304.15-020(18).
††††† (5) "Life settlement purchase agreement" means a contract or agreement entered into by an investor to purchase a life settlement investment for the purpose of deriving an economic benefit.
††††† (6) "Owner" is defined by KRS 304.15-020(19).
††††† Section 2. Registration of Life Settlement Investments. (1) In order to register a life settlement investment pursuant to KRS 292.370, the following activities shall be performed:
††††† (a) A registration statement containing the information established in Section 3 of this administrative regulation is filed with and approved by the commissioner;
††††† (b) The filing fee of $500 is submitted to the commissioner;
††††† (c) Each investor is provided with the documents established in Section 4 of this administrative regulation; and
††††† (d) A consent to service of process, if required under KRS 292.430, is filed with the commissioner.
††††† (2) Registration under this administrative regulation shall not be available to an issuer if the issuer; a predecessor or affiliate of the issuer; a director, officer, or general partner of the issuer; a beneficial owner of ten (10) percent or more of a class of the issuerís equity securities; a promoter of the issuer presently connected with the issuer in any capacity; an underwriter of the securities to be offered; or a partner, director, or officer of an underwriter of the securities to be offered:
††††† (a) Has filed within the last five (5) years a registration statement that is the subject of a currently effective registration stop order entered by a state securities administrator or the Securities and Exchange Commission;
††††† (b) Has been convicted within the last ten (10) years of a:
††††† 1. Felony;
††††† 2. Criminal offense involving fraud or deceit; or
††††† 3. Criminal offense in connection with the offer, purchase, or sale of a security;
††††† (c) Is currently subject to a state or federal administrative enforcement order entered within the last five (5) years finding fraud or deceit in connection with the purchase or sale of a security; or
††††† (d) Is currently subject to an order, judgment, or decree of a court of competent jurisdiction entered within the last five (5) years, temporarily, preliminarily, or permanently restricting or enjoining the subject of the order from engaging in or continuing to engage in a conduct or practice involving fraud or deceit in connection with the purchase or sale of a security.
††††† (3) Upon termination of the effective period of a registration statement filed under subsection (1) of this section, or prior to renewal of a registration statement, the issuer shall file a sales report indicating the aggregate sales price of securities sold in Kentucky during the effective period of the registration statement.
††††† Section 3. Filing Requirements - Registration Statement. (1) The registration statement required under Section 2(1)(a) of this administrative regulation shall contain the following information:
††††† (a) The name, address, and telephone number of the issuer, and the name of the contact person of the issuer;
††††† (b) The articles of incorporation of the issuer, if a corporation or similar organizational documents for other business organizations;
††††† (c) The name and address of each director and officer of the issuer along with the personís principal occupation for the past five (5) years;
††††† (d) A general description of the program and securities offered by the issuer, excluding details of specific life settlement policies or life settlement contracts;
††††† (e) A description of the nature and amount of commissions, findersí fees, or other remuneration paid directly or indirectly for soliciting a sale of a life settlement investment in Kentucky;
††††† (f) The issuerís most recent audited income and expense statement and balance sheet;
††††† (g) A blank copy of the Life Settlement Disclosure Document Parts A and B to be furnished under Section 4 of this administrative regulation to an investor;
††††† (h) A copy of all offering materials including any prospectus, pamphlet, form letter, advertisement, or other sales literature used or intended to be used in connection with the offer or sale of a life settlement investment; and
††††† (i) A statement indicating the procedures that the agents of the issuer will use to determine the suitability of the investment for an investor and a copy of any documents used to determine suitability.
††††† (2) The issuer shall promptly amend its registration statement if any of the information becomes inaccurate or incomplete in any material respect.
††††† (3) The effective period of a registration statement filed under this administrative regulation shall be established pursuant to KRS 292.380(6).
††††† (4) The information and documents required under KRS 292.370(2)(a) through (q) shall be omitted from a registration statement filed pursuant to this administrative regulation unless otherwise required in this administrative regulation.
††††† (5) The commissioner may deny, suspend, or revoke a registration pursuant to KRS 292.390.
††††† Section 4. Disclosure Requirements for Sale of Life Settlement Investments. (1) The following documents shall be provided to an investor in connection with the sale of a life settlement investment:
††††† (a) At least forty-eight (48) hours prior to the time a prospective investor executes a life settlement purchase agreement, the prospective investor shall receive a completed Life Settlement Disclosure Document Part A equivalent to Kentucky Form 10:410A.
††††† (b) On or before the date when the investor is presented with a specific life settlement investment under an executed life settlement purchase agreement, the investor shall receive a completed Life Settlement Disclosure Document Part B equivalent to Kentucky Form 10:410B.
††††† (2) The completed Life Settlement Disclosure Document Part A and B given to an investor shall reasonably conform to the formatting of Kentucky Forms 10:410A and 10:410B with respect to font size, boldface type, and line spacing.
††††† Section 5. Rescission. (1) Investor's right of rescission.
††††† (a) An investor shall have the right to rescind a life settlement purchase agreement at any time until ten (10) days after the investor executes a life settlement purchase agreement.
††††† (b) A rescission by an investor under paragraph (a) of this subsection shall be sufficient if addressed to the entity designated in the Life Settlement Disclosure Document Part B to receive the notice and the notice is either postmarked or received by the entity within ten (10) days after the investor executes a life settlement purchase agreement.
††††† (2) Required offer of rescission.
††††† (a) Within ninety (90) days after the execution of a life settlement purchase agreement by an investor, the issuer shall make an offer of rescission to the investor if, during that period, the issuer has not identified a specific life settlement contract that is suitable for the investor and has not delivered a completed Life Settlement Disclosure Document Part B to the investor.
††††† (b) The issuer shall notify the investor of the offer of rescission on Kentucky Form 10:410 or its equivalent. The notice of the offer of rescission shall reasonably conform to the formatting of Kentucky Forms 10:410 with respect to font size, boldface type, and line spacing.
††††† (c) An acceptance by an investor of an offer of rescission shall be valid if the acceptance is either postmarked or received by the entity designated in the offer within ten (10) days after the investor receives the offer.
††††† Section 6. Agent Registration. An agent of an issuer of a life settlement investment shall be registered pursuant to KRS 292.331 as an agent of the issuer and shall submit a completed Form U-4 as incorporated by reference in 808 KAR 10:010 to the commissioner. The agent shall also:
††††† (1) Pass the appropriate examination, which shall be one (1) of the following Financial Industry Regulatory Authority ("FINRA") examinations: Series 1, 2, 6, 7, 11, 17, 22, 24, 26, 39, 40, 52, 53, 62, or 79; and
††††† (2) Pass the North American Securities Administrators Association ("NASAA") Series 63 or Series 66 examination.
††††† Section 7. Waiver of Life Settlement Investment Requirements. Upon the request of an issuer, the commissioner may by order waive a requirement of this administrative regulation if the commissioner determines the waiver to be in the public interest and that the requirement to be waived is not necessary for protection of investors. The issuer bears the burden of proof to satisfy the commissioner that the waiver is in the public interest and that the requirement to be waived is not necessary for protection of investors.
††††† Section 8. Availability of KRS 292.410(1)(i) for Life Settlement Investments. An issuer may rely on the exemption provided in KRS 292.410(1)(i) for the offer or sale of a life settlement investment if the issuer:
††††† (1) Otherwise meets the conditions and requirements of KRS 292.410(1)(i); and
††††† (2) Prior to any sale in Kentucky, in reliance on this exemption, the issuer files with the commissioner a claim of exemption containing the information established in Section 3(1) of this administrative regulation.
††††† Section 9. Incorporation by Reference. (1) The following material is incorporated by reference:
††††† (a) Form 10:410A (November 2010 edition), "Life Settlement Disclosure Document Part A";
††††† (b) Form 10:410B (November 2010), "Life Settlement Disclosure Document Part B"; and
††††† (c) Form 10:410 (November 2010 edition), "Offer of Rescission - Life Settlement Investment".
††††† (2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. (27 Ky.R. 1122; Am. 1843; 2456; eff. 3-19-2001; 37 Ky.R. 2498; 2845; eff. 7-1-11.)