## Facts

- Life Partners, Inc. (LPI) organized and sold fractional interests in life insurance policies on terminally ill insureds (viatical settlements).
- Investors bought interests at a discount to face value and expected profit when the insured died and the insurer paid the death benefit.
- LPI’s main activities occurred before investors purchased: locating insureds, assessing medical information and life expectancy, negotiating policy purchases, and arranging transfers.
- After purchase, LPI’s role was largely administrative, including arranging premium payments and distributing proceeds.
- The SEC sued, alleging the interests were unregistered securities (investment contracts) sold with material misstatements and omissions.
- The district court treated the interests as securities and granted preliminary injunctive relief.
- A D.C. Circuit panel reversed, holding the interests were not “investment contracts” under the federal securities laws.
- The SEC sought rehearing and rehearing en banc; the court denied rehearing in the decision summarized here, accompanied by a statement supporting denial and a dissent.

## Issues

1. Whether fractional interests in viatical settlements are “investment contracts” under the *Howey* test when the promoter’s key efforts occur pre-purchase and post-purchase efforts are largely ministerial.
2. Whether the “efforts of others” element can be satisfied primarily by pre-purchase entrepreneurial activity rather than post-purchase managerial or entrepreneurial activity.
3. Whether the panel’s approach improperly created a temporal rule treating pre-purchase efforts as irrelevant to investment-contract analysis.

## Decision

- The court denied the SEC’s petition for rehearing and rehearing en banc, leaving the panel reversal in place.
- The statement respecting denial explained the panel did not adopt a categorical rule that pre-purchase efforts are irrelevant.
- The statement reaffirmed that pre-purchase services alone are insufficient to show profits arise predominantly from others’ efforts, and ministerial post-purchase functions carry less weight than entrepreneurial activities.
- The dissent would have granted rehearing, reasoning that investors’ profits substantially depended on LPI’s specialized pre-purchase underwriting and life-expectancy evaluation.

## Legal Principles

- An “investment contract” requires (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits to be derived predominantly from the efforts of others.
- For the “efforts of others” element, pre-purchase services may be relevant but cannot by themselves establish that profits arise predominantly from others’ efforts when post-purchase entrepreneurial or managerial efforts are absent.
- Post-purchase ministerial or administrative functions generally receive less weight than entrepreneurial or managerial efforts in determining reliance under *Howey*.
- Where profit depends primarily on an external contingency (here, the insured’s mortality) rather than ongoing managerial conduct, the arrangement may fall outside the investment-contract category.

## Conclusion

The D.C. Circuit’s denial of rehearing reaffirmed that LPI’s viatical settlement interests were not investment contracts on the record presented because investor returns depended chiefly on the insureds’ mortality and LPI provided no meaningful post-purchase entrepreneurial or managerial efforts, while clarifying that pre-purchase efforts are not irrelevant but are insufficient on their own to satisfy *Howey*’s reliance requirement.


Sec. & Exch. Comm’n v. Life Partners, Inc., 102 F.3d 587 (D.C. Cir. 1996)