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 AIG's Lavastone Capital said in a lawsuit filed Friday in New York
federal court that it had paid Coventry First of Fort Washington,
Pennsylvania, more than $1 billion since 2006 to help it acquire the
policies, known as "life settlements."
Coventry, whose chief executive is Philadelphia philanthropist Alan
Buerger, is the "leader and creator" of the life settlement
industry, according to its website. Investors who acquire a policy
cover the premiums until the individual's death and then collect the
payout.
Rather than identifying appropriate policies and selling them to
Lavastone at the elderly individuals' asking price, the lawsuit
claimed, Coventry used a network of shell companies to artificially
inflate the prices to Lavastone. The fraud cost Lavastone more than
$150 million, the lawsuit said.
"Thus, defendants' behavior is no different than an auction house
that knows a bidder's maximum price ceiling and then uses 'shill
bidders' associated with the auction house to fraudulently inflate
the price to that bidder's maximum bid," the lawsuit said. It called
Coventry and CEO Buerger "scam artists."
In a countersuit filed in New York state court a few hours later,
Coventry accused Lavastone of breaching its exclusive contract with
Coventry by allowing an affiliate to purchase life settlements from
other businesses.
The lawsuit also claimed Lavastone "concocted" fraud allegations to
escape contractual provisions that limit its ability to resell
certain policies, which Coventry estimated could cost AIG $700
million.
"Their lawsuit is simply meant to get leverage to get rid of the
contract provisions," Buerger said in an interview.
Coventry asked a judge to award it more than $100 million and
declare that Lavastone is not entitled to its own damages.
An AIG spokeswoman called the Coventry lawsuit "a baseless attempt
to distract attention from the fraudulent and illegal scheme that
AIG alleged in its complaint."
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Lavastone accused Coventry of engaging in racketeering, fraud,
conspiracy, breach of contract and other violations. The lawsuit
also noted two previous civil fraud actions against Coventry brought
by the New York Attorney General's office and Florida's insurance
regulator, both of which have been settled.
Besides Coventry, the lawsuit names several other business entities
as well as Buerger and several family members.
Lavastone spent about $6.5 billion over a decade to acquire nearly
7,000 life settlements with a face value of $20 billion, its lawsuit
said. AIG has since wound down its life settlement business, the
lawsuit said.
The Buergers are well-known philanthropists in Philadelphia who
donated $50 million to the Children's Hospital of Philadelphia last
year.
The federal case is Lavastone Capital LLC v. Coventry First LLC et
al., U.S. District Court for the Southern District of New York, No.
14-7139. The state case is Coventry First LLC v. Lavastone Capital
LLC, New York Supreme Court, New York County, No. 652712/2014.
(Reporting by Joseph Ax; Editing by Lisa Von Ahn and Richard Chang)
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