## Facts

- Mutual Benefits Corp. (MBC), a Florida viatical settlement provider, marketed and sold fractionalized interests in life insurance policies acquired from terminally ill insureds.
- Investors purchased interests expecting returns when insureds died and policy benefits were paid.
- MBC located insureds and policies, negotiated prices, recruited physicians for life-expectancy evaluations, prepared transaction documents, structured fractional interests, and arranged premium funding.
- The SEC alleged MBC raised over $1 billion from over 29,000 investors through an unregistered, fraudulent offering, including promised fixed returns and misrepresentations about independent life-expectancy evaluations.
- The district court entered emergency relief, including a temporary restraining order, asset freeze, and appointment of a receiver.
- Defendants moved to dismiss for lack of subject-matter jurisdiction, arguing the interests were not “securities”; the district court denied the motion, finding the interests were “investment contracts.”
- Defendants took an interlocutory appeal limited to whether the instruments were “investment contracts” under the Securities Act of 1933 and Exchange Act of 1934.

## Issues

1. Whether fractionalized interests in viatical settlement contracts sold by a provider constitute “investment contracts,” and therefore “securities,” under federal securities laws.

## Decision

- The Eleventh Circuit affirmed the denial of the motion to dismiss for lack of subject-matter jurisdiction.
- The court held the viatical settlement interests sold by MBC were “investment contracts” and thus “securities.”
- The court rejected a rule that considers only post-purchase managerial efforts; it assessed investor reliance based on the transaction’s economic reality, including significant pre-purchase efforts.

## Legal Principles

- Under Howey, an “investment contract” exists when there is (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) to be derived from the efforts of others.
- The “efforts of others” element may be satisfied by significant promoter activities occurring both before and after the investor’s purchase when those efforts are material to expected profits.
- In viatical settlement offerings, investor profits can depend substantially on the promoter’s specialized functions (e.g., selecting policies, assessing life expectancy, negotiating pricing, and arranging premium funding), not merely on the occurrence of death.
- The definition of “security” is construed broadly and flexibly to effectuate the remedial purposes of federal securities laws and to capture schemes that function as securities in substance.

## Conclusion

The Eleventh Circuit held that MBC’s fractional viatical settlement interests were securities because investors’ expected profits depended substantially on MBC’s specialized, value-determining efforts, and Howey’s “efforts of others” prong does not turn on a rigid pre- versus post-purchase distinction.


S.E.C. v. Mut. Benefits Corp., 408 F.3d 737 (11th Cir. 2005)