Retirement Value LLC, Receivership
I just received a check. Is this all?
No. There will be additional distributions.
When will you make additional distributions?
We cannot say at this point in time. That depends largely on the collection of death benefits and recoveries from the Receiver’s claims. Proceeds from the death benefits will be used to pay future premiums. When we have more money than we need to pay premiums, we will make additional distributions. We anticipate that the portfolio may take more than 20 years to fully mature, but we will be making distributions along the way.
How was the $5.5 million amount determined?
The estate has life insurance policies with an approximate face value of $131 million. We retained actuaries to determine how much money we needed on hand to ensure that the estate could pay premiums in the future. That amount was $17.4 million as of August 31, 2012. At that time, we had over $23 million of cash on hand. Accordingly, we sought authority to distribute the excess $5.5 million.
How do I report this for tax purposes?
We cannot provide you with tax advice and must refer you to your tax advisor. The IRS has, however, provided some guidance for taxpayers in your position. Theft Losses from Investments in “Ponzi” Schemes: Tax Treatment of Distributions Received from a Trustee or Receiver. (IRS 8/24/12)(available here). According to the IRS:
Whether a taxpayer who recovers amounts lost in a fraudulent investment scheme is required to include
the recovery in income depends on whether the taxpayer claimed a tax deduction for the theft loss in any
prior year. A taxpayer who has not yet claimed a tax deduction for the theft loss is not required to include
in income a recovery from the trustee or receiver. Instead, the recovery will reduce the amount a taxpayer
may eventually claim as a loss. A taxpayer who claimed a tax deduction for the theft loss, however,
may be required to include the recovery in income, depending on the extent to which the theft loss
deduction created a “tax benefit” for the taxpayer.
Because the IRS does not consider the return of amounts lost in a fraudulent scheme to be income, the Receiver will not be issuing Form 1099s for the October 15, 2012 distribution. Because everyone’s tax situation is different, each investor should consult his or her tax advisor regarding the proper treatment of the distribution; particularly if he or she already took a deduction based on the losses from Retirement Value.
Can I deposit the check?
Yes. You are not waiving any claims against the estate. This is merely an initial distribution.
Why is the check made payable to my IRA custodian?
If your investment is through an IRA, Roth IRA, or other investment vehicle, I must make the checks payable to your account custodian. You will need to deposit the check with that custodian. You may redeploy those funds from there, as you and your tax advisors deem appropriate. I encourage you to speak with your tax advisors about distributions, required minimum distributions and rollovers.
Must I keep using my current IRA custodian?
No. That is a contractual relationship between you and your custodian. It is, however, too late to change custodians for the initial distribution. If you want to change your IRA custodian going forward, you will need to identify a substitute custodian that is willing to assume custody of your investment in RV and your claims against RV. The substitute custodian can then coordinate a transfer of these assets from your current custodian. Once the substitute custodian has assumed custody of these assets, it must notify my office of the transfer and provide me with appropriate documentation, so that we may update our records accordingly.
How much am I going to get back?
We don’t know the exact number. The actuarial models project a return that is roughly equal to the amount that Retirement Value and Hill Country Funding raised. We expect the portfolio will generate between $64 million and $98 million dollars, with the most likely outcome being $82 million.
Is the Receiver my lawyer?
The Receiver is not your lawyer and does not represent your personal interests. Instead, he has been appointed by the Court to manage the affairs and assets of Retirement Value for the benefit of its creditors and members. The same is true for the Special Receiver. Similarly, the lawyers representing the Receiver and the Special Receiver – Dykema Cox Smith, K&L Gates LLP and George Brothers Kincaid & Horton LLP – do not represent the investors either individually or as a group.
Is my money gone?
Not entirely. Your initial investment went to Kiesling Porter. Kiesling Porter set up bank accounts that appear to have been intended to segregate funds for each insurance policy. Your contribution and the contribution of the other investors were allocated among the various bank accounts. Commissions, fees, administrative expenses and Retirement Value’s profits were paid out of these accounts. The balance was used to: (i) acquire policies; and (ii) fund reserves for premium payments.
How much of my investment was paid out in commissions, fees, administrative expense and profits?
The amount varied from investor to investor. Generally, 30%-40% of each investor dollar went towards commissions, fees, administrative expenses and profits.
Do the policies even exist?
Yes, we have found that policies do exist and that funds were reserved to make premium payments. Whether Retirement Value’s premium reserve is adequate to cover premium payments for the remainder of the measuring life is uncertain.
If so, are the policies being maintained or allowed to lapse?
The Receiver’s objective is to protect and preserve Retirement Value’s assets, including the policies. Accordingly, we are paying the premiums on the policies owned by Retirement Value, as they come due, in order to maintain the policies and prevent their lapse.
My agent says this is just about whether Life Settlements are securities?
Whether the investments sold by Retirement Value constitute a security is one aspect of the case. However, a more significant aspect of the case is whether Retirement Value, its agents, representatives and licensees provided you with false information when selling the investment to you.
Is investing in Life Settlements illegal?
No. The issue of the case is not life settlements in general, but rather how Retirement Value went about structuring the investment opportunity, and how Retirement Value, its agents, representatives and licensees marketed and sold it.
I never put the money into policies, so can I just get it back?
Or I sent my money in but then the Cease & Desist order was issued, so it never went into any specific policies, where is my money?
Actually, no one ever really put money into policies. What Retirement Value’s investment documents reflect is that you gave money to Retirement Value so that Retirement Value could buy policies, in exchange for repayment of a fixed amount upon the underlying insured’s demise. Once your 10 day “free look” period expired, your investment in Retirement Value became an asset of Retirement Value. Regardless of whether your funds were actually used to acquire one or more policies, you are in the same position as all other investors. Each investor has a claim against the estate of Retirement Value for entire amount of his or her investment. We are in the process of determining the amount of each investor’s investment, so as to fully understand the claims against the estate.
I never received a confirmation that I had acquired any policies? Can I get confirmation of what policies I own?
Again, no investor owns a policy or policies. What you bought was Retirement Value’s promise to pay you a certain amount. Regardless of whether or not you received confirmation that policies were acquired with the funds you provided, you have a claim against Retirement Value for the amount of your contribution.
Can I just take my money out now?
No. The policies acquired by Retirement Value are illiquid investments. We are attempting to ascertain the value of Retirement Value’s assets and to determine how to maximize the return from those assets. Once we have fully assessed the options available to us, we will propose a plan of distribution to the Court and schedule a hearing at which time the court will determine whether to approve the plan. No payments to investors will be made until the Court approves a plan of distribution.
When will I get my money back?
Distributions are made from the assets of the combined estates of Retirement Value and Hill Country Funding. An initial distribution in the aggregate amount of $5,500,000 was made on October 15, 2012. The estate's cash reserves are approximately $17.3 million.
We do not know when another distribution will be made. In order for the estate to make additional distributions, it needs to increase its cash reserves to an amount substantially above the current levels so that it can continue making uninterrupted premium payments. Likely sources of cash to fund the requisite reserve increase include: death benefits, a large settlement or multiple small settlements. Three things happen when an insured passes away: (i) the estate’s ability to claim death benefits is triggered; (2) the premiums associated with that particular policy cease, relieving the need to maintain cash reserves for it; and (3) the variables in the forecast models are reduced by the variables associated with that policy. There have been 4 policy maturities since the PLI140 policy matured in 2010. In the longer term, recoveries from judgments against third-party defendants may also trigger distributions. All of these potential future events affect the available excess net cash flow. As these events occur, we will rerun the actuarial models to assess the adequacy of the estate’s cash reserves. The timing of additional distributions will depend largely on when cash reserves exceed the required reserves.
If an insured on a policy I invested in passes away while this is going on, will I get my payout from that policy?
No. Under the plan of distribution adopted by the Court, no investor has an interest in any particular policy. Instead, the assets of the estate will be distributed in accordance with the plan. The plan generally calls for investors to be paid pro rata based on their net investment.
Why do I need to send you my documents, shouldn’t Retirement Value have copies?
Among other things, so that we may verify the accuracy of Retirement Value’s books and records. By comparing your records with the companies, we are attempting to verify RV’s assets and liabilities. We need your documents to assure that the amount you say you invested and the policies you invested matches up with the documents from RV and the escrow agent.
Death of insured under Policy# PL1140-111109-DM
The insured under policy PLI140-111109-DM has passed away. Pacific Life has paid the Receiver's claim. However, our receipt of funds does not change the situation with respect to distributions to Retirement Value's investor-victims. The estate still does not have sufficient funds to repay all of the victims. Generally speaking, the investors share in all estate assets pro rata based on their investment.
I received an invoice from Provident or IRA Plus Southwest for a maintenance fee on an IRA account, do I need to pay that bill?
Though your claims against the Retirement Value estate are currently in your IRA, your relationship with the IRA's custodian -- is outside of the Receivership. The fee you reference is the company’s annual fee to act as the IRA custodian. Failure to maintain a custodian may result in the dissolution of your IRA. If your IRA is dissolved, then the IRS may deem that to be a distribution which may have adverse tax consequences for you. Quite simply, I do not know if the custodian will waive the fee, if you can substitute a custodian, or if you can otherwise maintain the IRA without paying the fee. Moreover, I cannot provide you (or, for that matter, any of the investors) with tax advice.
Accordingly, I encourage you to consult with a tax professional of your choosing. The Internal Revenue Service provides information and answers to common questions on its website. For your convenience, here is a link http://www.irs.gov/retirement/article/0,,id=111413,00.html to a page from IRS.gov dealing with IRAs. You may also contact the IRS through its toll-free tax assistance line at (800) 829-1040.
Value of IRA account?
We have received multiple questions regarding the "fair market value" of the IRA accounts. We understand that if you are unable to provide your IRA custodian with a "fair market value," the custodian may continue to report the investment's "fair market value" at the IRA's cost. As of yet, we have not undertaken a formal valuation of RV's estate or more particularly your claims against the estate. Moreover, for a myriad of reasons, including without limitation, the lack of a market for your investment and the illiquidity associated with the underlying assets, we cannot provide you with a "fair market value" for your investment. The following information is offered solely so that you may make your own valuation and assessment as to whether you wish to report "fair market value" at cost or at some other amount. RV's ability to repay the investors depends on our ability to capitalize on the insurance policies that RV acquired.
The following facts should help you in assessing your claim’s value:
1) The estates of Retirement Value (RV) and Hill Country Funding (HCF) have been combined;
2) According to the Order consolidating the estates, distributable assets are to be split 94.7% towards RV
claimants and 5.3% towards HCF.
3) As of 8/31/2012 the combined estates had:
a. Cash on hand equal to $22,961,231.75;
b. Unmatured policies with aggregate face value of $131,585,000; and
c. Claims against various parties of an undeterminable value.
4) Approved Investors' claims against the estate totaling approximately $80,362,000.00, of which:
a. $76,406,904 pertain to RV; and
b. $3,955,089 pertain to HCF.
5) The policies, for which RV paid approximately $28 million, have relatively little market value;
6) The policies current liquidation value does not begin to approach the $80 million that RV/HCF
raised from investors.
If we were to liquidate the policies and distribute all then available cash the claimants, we anticipate that the RV investors would receive $0.43½ (give or take a penny) per dollar invested. We believe that holding onto the policies and administering them as a portfolio will yield a significantly better result over the long term. Your claims may arguably be worth about $0.43½ per $1.00 invested (potentially even less, if you were to apply additional discounts for control, liquidity or other constraints on the asset).
All this is to say, that we cannot advise you as to IRA's investment’s fair market value. You should consult with your tax advisor as to what valuation position you should take. I encourage you and your advisors to review my reports and other information posted on the estate’s website.
Should I sue my licensee or investment advisor?
A number of investors have asked whether they should sue their licensees. I cannot advise you as to whether you should or should not sue your licensee. You should be aware, however, that the law generally requires that lawsuits be filed within a set period of time. Exactly how long you have to bring a claim varies between state and federal law and among the various states.
To obtain advice on these issues, you should consult with an attorney of your choosing. While I cannot recommend an attorney to you, I can tell you that the State Bar of Texas operates a Lawyer Referral Information Service (www.texasbar.com), which can assist you in locating a suitable lawyer. The bar associations of other states may provide similar services. There are also a number of legal directories (including the Yellow Pages) that you may also wish to consider.
RETIREMENT VALUE, LLC
Frequently Asked Questions From Investors