Investors and financial advisers who backed so-called “death bonds” sold by EEA Life Settlements have raised enough money to launch a legal battle to recover $800m (£545m) in losses from the firm.
Based in Guernsey, EEA Life Settlements invested in second-hand insurance policies from elderly Americans.
It promoted itself as a low-risk collective investment and promised financial advisers and investors returns of 8 per cent per year.
However, the elderly policyholders lived longer than expected and the cost of servicing the policies - paying the premiums to maturity - surged.
In November 2011, the fund was suspended after the Financial Services Authority branded investments into traded life policies as “toxic” and possibly unsuitable for retail investors.
Following the regulator’s warning the fund lost $200m (£129m), which EEA blamed on the FSA.
But members of the EEA Investors’ Group said the losses were a result of mismanagement, negligence and misrepresentation.
Following pressure from both investors and advisers, a litigation group was set up last year called EEA Investor Litigation Group with the aim of trying to recover the losses.
The group said it has now raised enough to instruct London-based legal firm Enyo Law to develop the strategy in a bid to help recoup the losses.
A spokesman for the litigation group said: “Long-suffering investors are now one step closer to stemming and recovering their losses.”
In 2013, the fund’s auditor, Ernst and Young, resigned because they could not agree future valuations with EEA management.
The litigation group spokesman added: “We still need more members and look forward to working with investors and their financial advisers to achieve success.”
In July last year, the European Human Court of Human Rights rejected a claim by a separate EEA action group - called the Action Group for Life Settlements - against the UK government.
katherine.denham@ft.com
