808 KAR 10:410. Viatical settlement interests.

808 KAR 10:410. Viatical settlement interests.

RELATES TO: KRS 292.340, 292.370, 292.410(1)(i)

STATUTORY AUTHORITY: KRS 292.330, 292.340, 292.370, 292.410(1)(i), 292.500(1), (3)

NECESSITY, FUNCTION, AND CONFORMITY: KRS 292.500(3) authorizes the executive director to promulgate administrative regulations necessary to carry out the provisions of KRS Chapter 292. KRS 292.340 provides that it is unlawful to offer or sell a security unless the security is registered under KRS Chapter 292, or the security or transaction is exempt, or the security is a covered security. This administrative regulation establishes the requirements for the registration of viatical settlement interests. KRS 292.330 provides that it is unlawful for an agent to transaction business in Kentucky unless registered under KRS Chapter 292. This administrative regulation establishes the requirements for registration of viatical settlement interests and for registration of an agent selling viatical settlement interests.

Section 1. Definitions. (1) "Viatical settlement contract" means a:

(a) Written agreement between a viator or insured and a viatical settlement provider for the sale, assignment, transfer, devise, or bequest to the viatical settlement provider by the viator or insured of all or a portion of the death benefit or ownership of a life insurance policy, for consideration that is less than the expected death benefit of the life insurance policy; or

(b) A contract for a loan or other financial transaction secured primarily by an individual or group life insurance policy, but does not include a contract for:

1. A loan by a life insurance company under the terms of a life insurance contract;

2. A loan secured by the cash value of a policy;

3. The assignment of a life insurance policy as collateral for a loan to a bank, saving bank, savings and loan association, credit union, or other licensed lending institution;

4. The exercise by the insured of an accelerated benefits provision under the terms of the life insurance contract; or

5. The assignment, transfer, sale, devise, or bequest of a life insurance policy, for less than the expected death benefit, by the viator to a natural person if the person does not enter into more than one (1) agreement per calendar year.

(2) "Viatical settlement interest" means the entire interest or a fractional interest in a life insurance policy or in the death benefit under a life insurance policy that is the subject of a viatical settlement contract; but does not include the initial purchase from the viator by a viatical settlement provider.

(3) "Viatical settlement provider" means a person, other than a viator or insured, that enters into a viatical settlement contract, including a person that:

(a) Obtains financing for the purchase, acquisition, transfer or other assignment of a viatical settlement contract, viaticated policy, or viatical settlement interest; or

(b) Sells, assigns, transfers, pledges, hypothecates, or disposes of a viatical settlement contract, viaticated policy, or viatical settlement interest.

(4) "Viatical settlement purchase agreement" means a contract or agreement entered into by an investor to purchase a viatical settlement interest for the purpose of deriving an economic benefit.

(5) "Viaticated policy" means a life insurance policy that has been acquired by a viatical settlement provider under a viatical settlement contract.

(6) "Viator" means the owner of a life insurance policy insuring the life of an individual who enters or who seeks to enter a viatical settlement contract, but does not include:

(a) A viatical settlement provider; or

(b) A person that acquires a viaticated policy or a fractional interest in a viaticated policy from a viatical settlement provider or a subsequent investor.

Section 2. Registration of Viatical Settlement Interests. (1) In order to register an investment contract known as a viatical settlement interest 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 executive director;

(b) The filing fee of $500 is submitted to the commissioner;

(d) A consent to service of process, if required under KRS 292.430, is filed with the executive director.

(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 issuer’s 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 five (5) 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;

(c) The name and address of each director and officer of the issuer along with the person’s principal occupation for the past five (5) years;

(d) A general description of the program and securities offered by the issuer, but not including details of specific viaticated policies or viatical settlement contracts;

(e) A description of the nature and amount of commissions, finders’ fees, or other remuneration paid directly or indirectly for soliciting a sale of a viatical settlement interest in Kentucky;

(f) The issuer’s most recent audited income and expense statement and balance sheet;

(g) A blank copy of the Viatical 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 viatical settlement interest; 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 executive director may deny, suspend, or revoke a registration pursuant to KRS 292.390.

Section 4. Disclosure Requirements for Sale of Viatical Settlement Interests. (1) The following documents shall be provided to an investor in connection with the sale of an investment contract known as a viatical settlement interest:

(a) At least forty-eight (48) hours prior to the time a prospective investor executes a viatical settlement purchase agreement, the prospective investor shall receive a completed Viatical Disclosure Document Part A equivalent to Kentucky Form 10:410A.

(b) On or before the date when the investor is presented with a specific viatical settlement interest under an executed viatical settlement purchase agreement, the investor shall receive a completed Viatical Disclosure Document Part B equivalent to Kentucky Form 10:410B.

(2) The completed Viatical 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 viatical settlement purchase agreement at any time until ten (10) days after the investor executes a viatical 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 Viatical 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 viatical settlement purchase agreement.

(2) Required offer of rescission.

(a) Within ninety (90) days after the execution of a viatical 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 viatical settlement contract that is suitable for the investor and has not delivered a completed Viatical 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 an investment contract known as a viatical settlement interest shall be registered pursuant to KRS 292.330 as an agent of the issuer and shall submit a completed Form U-4 to the executive director along with proof of passing one (1) of the following examinations administered by the National Association of Securities Dealers:

(1) The Series 63 Uniform Securities Law Examination; or

(2) The Series 66 Uniform Combined State Law Examination.

Section 7. Waiver of Viatical Settlement Interest Requirements. Upon the request of an issuer, the executive director may by order waive a requirement of this administrative regulation if the executive director 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 executive director 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 Viatical Settlement Interest. An issuer may rely on the exemption provided in KRS 292.410(1)(i) for the offer or sale of a viatical settlement interest 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 executive director 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 (February 2001 edition), Viatical Disclosure Document Part A;

(b) Form 10:410B (February 2001 edition), Viatical Disclosure Document Part B; and

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Office 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.)