Monday, January 11, 2016

No. 138: The Life Partners Bankruptcy and an Offer from ASM Capital to Investors with Matured Fractional Interests

Life Partners Holdings, Inc. (LPHI) is the parent of Life Partners, Inc. (LPI), which was a participant in the secondary market for life insurance policies. On January 20, 2015, as discussed in No. 81 (posted January 22, 2015), LPHI filed for protection under Chapter 11 of the federal bankruptcy law. LPI later became a part of the bankruptcy court proceedings. H. Thomas Moran II is the Chapter 11 Trustee appointed by the bankruptcy court. Among those with an interest in the bankruptcy court proceedings are those who invested in fractional interests in the life settlements marketed by LPI. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289.)

The Preliminary Letter
ASM Capital (Woodbury, NY) is a firm that invests in the obligations of companies in bankruptcy. On or about December 1, 2015, ASM sent a one-page letter to a small sample of LPI fractional interest investors who have a "matured fund interest." That expression refers to a fractional interest in a policy on the life of an insured who has died. ASM asked the investor to contact ASM if the investor was interested in selling his or her claim in exchange for a prompt cash payment. Based in part on responses to the preliminary letter, ASM moved to the next step.

The Offer Letter
On December 22, ASM sent a one-page letter to each LPI fractional interest investor with a matured fund interest. The top of the letter shows the name and address of the owner of the matured fund interest. Just below that is the policy number, the policy face value, and the percentage owned by the investor. In the body of the letter are three items:
  • The "payout amount" is the policy face value multiplied by the percentage owned.
  • The "purchase percentage" is the percentage of the payout amount that ASM will pay to the investor.
  • The "ASM purchase price" is the payout amount multiplied by the purchase percentage.
Consider an example. Suppose the policy face value is $5 million and the percentage owned by the investor is one-third of 1 percent. The payout amount would be $16,666.65 ($5 million multiplied by 0.00333333). Suppose the purchase percentage is 75 percent. The ASM purchase price would be $12,499.99 ($16,666.65 multiplied by 0.75).

The Purchase Agreement
Enclosed with the offer letter was a two-page, small-print "matured funds purchase agreement." ASM asks the investor, if he or she wants to receive the ASM purchase price, to sign, date, and send the agreement to ASM, which will send payment within three to five business days provided everything is in order.

The matured funds purchase agreement consists of ten paragraphs. The titles of the ten paragraphs, along with the full text of the "Indemnification" paragraph, are as follows:
  • Purchase of Matured Funds.
  • Representations; Warranties and Covenants.
  • Execution of Agreement.
  • Consent and Waiver.
  • Matured Fund Interest or Recovery Impaired or paid on an Amount Less than the Payout Amount.
  • Notices (including Voting Ballots) Received by Seller; Further Cooperation.
  • Recovery (including Cure Payments) Received or Delayed by Seller.
  • Governing Law, Personal Jurisdiction and Service of Process.
  • Indemnification. Seller further agrees to reimburse Purchaser for all losses, costs and expenses, including reasonable legal fees at the trial and appellate levels incurred by Purchaser as a result of, in connection with, or related to any (a) impairment, (b) Seller's breach of this Agreement, including without limitation any misrepresentation by Seller, and/or (c) litigation arising out of or in connection with this Agreement or in order to enforce any provision of this Agreement.
  • Miscellaneous.
Below those ten paragraphs is the execution section of the agreement. The "Seller" (the investor) signs and dates the agreement, and the "Purchaser" (ASM) later signs and dates the agreement.

My Contact with ASM
I learned of the ASM offer when a reader sent me a copy of the offer letter and the agreement. The agreement was virtually unreadable. I contacted ASM and requested a good copy. ASM promptly provided a generic John Doe offer letter and the agreement. In the course of conversation, I learned of the preliminary letter and ASM provided a generic copy of that letter as well.

The only problem with the generic letters is that they are dated January 6, 2016, the date ASM prepared them for me. It is my understanding that the preliminary letters were dated around December 1, and that the actual offer letters were dated December 22.

General Observations
The Chapter 11 Trustee has a website at I have not yet seen anything on that website concerning the ASM offer. I doubt that the Trustee will offer what would amount to legal advice about the ASM offer to investors with matured fund interests, although he might indicate that it is usually a good idea to obtain legal advice from an attorney before entering into a complex legal agreement.  Nor will I offer advice, because I am not an attorney, a consultant, or a financial adviser.

Available Material
I am making available a complimentary four-page PDF consisting of the generic forms of the ASM preliminary letter, the ASM offer letter, and the matured funds purchase agreement. Send an email to and ask for the December 2015 ASM/Life Partners package.