The sales agents, represented by Igor Timofeyev of Paul Hastings LLP, contend that the court erred in ruling that the life settlement transactions were securities. Timofeyev argued that the investment returns primarily depended on the lifespan of the insured, rather than the managerial efforts of Pacific West. He compared the sales process to purchasing art, where the investors make decisions based on available options but do not rely on the company’s management to generate profits.
U.S. Circuit Judge Richard Clifton challenged this analogy, noting that investors often select from various offered mutual funds, which are still considered securities. Timofeyev disagreed, stating that the key difference lies in the lack of managerial activities in the life settlement transactions. He emphasized that the expected profits were primarily based on external factors, such as the lifespan of the insured individuals, not the company’s efforts.
The SEC, represented by Kerry Dingle, argued that Pacific West’s involvement—particularly in managing policy premiums and selecting investment opportunities—met the requirements of the Howey test. The SEC lawyer also contended that disgorgement of commissions is appropriate, regardless of whether the agents were involved in fraud, as it addresses unjust enrichment.
