SEC Brings Suit Against Alleged Mastermind Of Life Settlement

Author:Mr Stephen Baker and Michael J. Miller
Profession:Drinker Biddle & Reath LLP

We write today about an action filed by the Securities and Exchange Commission (SEC) against Steven Kobayashi for allegedly orchestrating a multi-million dollar Ponzi scheme involving investments in purported life settlements. According to the complaint, "be¬tween 2006 and 2009, financial advisor Steven T. Kobayashi defrauded his customers out of millions of dollars. After establishing a private fund for his customers to invest in life settlement policies, Mr. Kobayashi began siphoning money into his own bank account." The complaint alleges Kobayashi violated Sections 10(b) and 15(a) of the Exchange Act. The SEC seeks, among other things, a permanent injunction that enjoins Mr. Kobayashi from violating these sections of the Exchange Act, payment of civil penalties and the disgorgement of all ill-gotten gains, plus prejudgment interest.

The SEC filed this complaint in the United States District Court for the Northern District of California on March 3, 2011, coinciding with a criminal information filed against Mr. Kobayashi on that same date. According to the SEC's complaint, in December 2004, Mr. Kobayashi is alleged to have established Life Settlement Partners, LLC (LSP), the company that would ultimately purchase the purported life settlements. Then, according to the allegations in the complaint, "[i]n late 2004, Kobayashi advised [certain] customers that life settlement policies were a sound investment." Allegedly, in 2005, after obtaining $1.4 million from investors, "LSP purchased approximately 25 life settlement policies and Kobayashi paid their premiums."

According to the complaint, LSP was operated as a legitimate business for a period of time. However, the SEC alleges that in "February 2006, Kobayashi began funneling mon¬ey from LSP into his personal account." "By mid-2007, Kobayashi had run through LSP's liquid assets . . . [and] was unable to pay premiums on LSP's life...

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