Desperate for help, a retiree from Orland Park wrote to the Illinois attorney general's office last year. He had invested $25,000 of his retirement savings in 1998 with a suburban company that projected he could earn 28 percent within two years through an unusual transaction.
Six years after making the investment, the 69-year-old former salesman had yet to receive a penny. After the state shuffled the retiree's letter between offices, a terse response came from the Department of Insurance offering some advice: "If you want to pursue the matter further, we can only suggest you contact an attorney."
The letter was a pointed reminder that this corner of the financial world, though growing rapidly, remains largely unregulated. There is little state oversight, no government office to call for help, no regular monitoring of operations. In fact, Illinois law never addresses the rights of those who put their money into viaticals.
Viatical investors can make a nice profit, but too often the transactions are not so simple or lucrative, and the industry has been marred by more than 100 fraud investigations.
Although a few jurisdictions have moved aggressively to corral the industry, Illinois' oversight remains lax, the Tribune found after reviewing thousands of court files and analyzing regulatory actions around the nation.
In New York, for instance, state auditors fan across the country to review balance sheets of viatical companies. But Illinois conducts no regular on-site visits.
Florida has required the annual filing of comprehensive and detailed financial reports spanning dozens of pages. Illinois requires only vague and aggregate data, averaging fewer than four pages.
California requires sales brokers to register with the state in order to keep track of how viaticals are marketed. Illinois has no registry for brokers.
And companies shut down in other states have been welcomed by Illinois regulators. A suburban Chicago company, Robin Hood Group Inc., operates here despite findings in other states that its sales force engaged in improper sales or marketing practices.
Oversight in Illinois is inconsistent and enforcement uneven, in part because the state's Department of Insurance and Department of Securities approach viaticals in different ways.
"Our priority is to ensure that the policyholder is protected," said Deirdre Manna, acting director of the Illinois Department of Insurance. "That's our goal, and I think we've done a good job of making sure that that person is protected."
Illinois law requires that viatical providers obtain a license from the Department of Insurance. The department also approves the language used in viatical contracts with policyholders, and it requires an annual statement summarizing the provider's transactions during the previous year.
There is no licensing or training for brokers, the people who sometimes help policyholders sell their insurance benefits. Nor does Illinois mandate companies pay a minimum percentage of face value, a critical protection adopted by at least a dozen states, a Tribune review of state administrative codes shows.
The law also does not regulate viaticals as securities investments, though some in state government believe that is what they most resemble. In fact, the Department of Securities, which is part of the secretary of state's office, sporadically investigates viatical companies, but the legal precedent is an untested inter-pretation of the state's 1953 securities law.
In the end, that leaves investors with little protection or advice. Although the Department of Insurance's Web site has information for those contemplating selling their insurance benefits, there are no guidelines for those interested in buying such investments.
If a person invests in a stock, he or she can look in the newspaper every morning to track fluctuations in the market. Investing in someone else's life insurance benefits requires a higher level of trust. The viatical company promises to keep track of whether policyholders are alive by contacting them, typically with a phone call or postcard. It then updates investors every month or quarter with an update on the health of those whose benefits they've purchased.
Before buying someone's insurance benefits, the investor also must believe the accuracy of life-expectancy analysis done by doctors the viatical companies hire.