Sonoma County man's soured retirement bet reveals risks of investing in timely demise
Nearly 20 years ago in 1998, Petaluma jazz musician Christopher Amberger gave $20,000 to Legacy Capital Corp. with the hope of a 12 percent return. The transaction involved buying portions of two life-insurance policies held then by patients with life expectancy of 18 and 24 months, according to Amberger. If the patients died as expected within two years, the investment would pay off.
But the patients with AIDS did not die as expected. They apparently lived for many years and may still be alive. In October 2016, Amberger sued Legacy in federal court for amounts he alleges he lost plus punitive damages. The complaint includes allegations of violation of the consumer legal remedies act, fraud, breach of fiduciary duty and violation of the Securities Act of 1933.
One of the life-insurance policies was with Massachusetts Indemnity, and the other with MetLife, according to the lawsuit.
NOWHERE CLOSE TO RETIREMENT SAVINGS
“It was supposed to pay off in two years,” Amberger said in an interview. “It didn't.”
Amberger is a jazz bass player who has made his living for several decades as a musician. He moved to Petaluma some 30 years ago. Now age 68, he played a gig recently at Claremont Club in Berkeley and one on March 28 at Dry Creek Kitchen in Healdsburg. Amberger plays regularly with Peter Welker, another Petaluma jazz musician.
“You have to work 500 gigs to make $30,000 a year,” said Amberger, noting that he receives about $600 a month from Social Security. “For me, $20,000 was like $200,000 to the average Joe,” he said. “They tell you you need $1 million to retire. I'm not even close.”
New York-based Legacy Benefits, LLC, named as a co-defendant in the lawsuit, has Anat Peirez as its general counsel.
“Mr. Amberger entered into a transaction with Legacy Capital Corp. in 1998, almost 20 years ago,” Peirez wrote in an email to North Bay Business Journal. “That transaction is wholly unrelated to Legacy Benefits, LLC, which was established in 2008 and has had no business dealings with neither Mr. Amberger nor Legacy Capital Corp.”
“It is clear that all the claims in Mr. Amberger's action are not only baseless but well beyond the statute of limitations,” Peirez said. “Based on the choice of jurisdiction/venue provisions in the contract between Mr. Amberger and Legacy Capital Corp., the defendants successfully petitioned to transfer the action to a New York court, where it is currently pending.”
The defendants filed an answer in the U.S. District Court in New York. “Legacy Benefits, LLC intends to vigorously defend itself against all the meritless claims made against it in this action,” Peirez said.
In the answer, all three Legacy entities and trustee Mills, Potoczak denied all the allegations in Amberger's complaint, and requested dismissal of the lawsuit as well as attorney fees and costs. The defendants are represented by Jeffrey Kramer, attorney with Locke Lord in New York.
In January, the court of the Northern District of California ordered that the action be transferred to the Southern District of New York. A section of the contract Amberger entered into stated: “This Agreement shall be governed by the laws of the State of New York, and any litigation related hereto shall be brought in the State of New York.”
The lawsuit alleges that Legacy “knew that viatical settlement investments were risky - especially for AIDS patients,” the lawsuit stated. Legacy Capital Corp. “knew that the first effective retroviral drugs, lamivudine and zidovudine, were released on Sept. 26, 1997 and by the time of Plaintiff's investment, had shown significant promise,” the lawsuit alleged, and that “these investments were exceedingly risky and inappropriate for a small-time unexperienced investor.”
A BET AGAINST SURVIVAL
Viatical investments may appear lugubrious because they are a speculative financial bet against the survival of persons, and the investor benefits from viators' early demise. Viatical investments assume a risk-benefit position similar to that of a person who buys life insurance on himself or herself, typically naming family members as beneficiaries who then benefit financially from the purchaser's early demise when premium payments are few.
A viatical settlement involves sale of a life insurance policy on a terminally ill patient who may need money for medications or to improve quality of life. Typically, a viatical contract gives the ill patient a portion of the face value of the policy in cash. Patients in viatical investments usually have life expectancy less than two years.
Sale of a life-insurance policy on an insured with a longer life expectancy is called a life settlement. Usually such settlement amounts are higher than insureds would obtain under a surrender value or cash value - the savings portion of a whole-life insurance policy, which may impose a surrender charge up to 10 percent.