U.S. Law Week’s August 2025 Circuit Split Review: Death Bets (1)

Companies, like Pacific West Capital Group, that sell fractional interests in life settlements sell investment contracts subject to federal securities law, the Ninth Circuit said, joining a circuit split on the question.

The US Court of Appeals for the Ninth Circuit got its analysis of life settlements right in SEC v. Barry, University of Colorado law professor Ann Lipton told Bloomberg Law. The opinion was just a simple, straightforward application of the test for determining what constitutes a security from the US Supreme Court’s opinion in SEC v. WJ Howey, she said.

The Ninth Circuit’s holding was refreshing because most cases applying Howey recently involve cryptocurrency, but Howey doesn’t necessarily apply in that setting, Lipton said.

A life settlement, sometimes called a “death bet,” is a transaction in which a person who owns a life insurance policy sells it to investors for an amount less than face value. The investors then pay the premiums until the insured dies, at which point they receive the policy’s death benefit.

Life settlements have become a multimillion-dollar industry. While they allow an insured and investors to capitalize on the original policy, they don’t benefit insurance companies, because the companies end up having to pay out on policies that may have otherwise lapsed.

The Eleventh and Fifth circuits have also ruled that life settlements are securities, but the D.C. Circuit said in 1996 that they aren’t.

Apollo Global Management Inc. is involved in the life settlement industry. In a lawsuit filed in April 2024 in Delaware Chancery Court, it was accused of “carrying out a widespread fraudulent human life wagering conspiracy designed to not only hide its involvement, but to create the false appearance that the policies it owns are somehow legitimate.” Apollo responded that the claims were disingenuous and that it didn’t engage in a fraudulent conspiracy as claimed in the suit. That case, Estate of Barotz v. Wilmington Savs. Fund Soc. FSB, is currently stayed pending a ruling from the Delaware Supreme Court on a related issue.

Though the Ninth Circuit ruling highlights a circuit split, Lipton said that it’s unlikely to receive Supreme Court review. The split is lopsided and the DC Circuit’s holding is stale, she explained.

Lipton is the Laurence W. DeMuth Chair and teaches Securities Regulation and Mergers, Acquisitions and Reorganizations at Colorado Law. She previously clerked for Supreme Court Justice David Souter and Third Circuit Judge Edward Becker.

Regulation of Life Settlements

By being labeled a security, a life settlement becomes subject to regulation under the Securities Act. The statute defines securities as an “investment contract.”

Howey said that an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” The test is broad and intended to compel the disclosure of the many instruments that “fall within the ordinary concept of a security,” the high court said.

In the Ninth Circuit case, PWCG sold fractional life settlements to investors. PWCG received medical and policy information worth hundreds of millions of dollars every month and reviewed it for investment opportunities.

A PWCG brochure assured investors that PWCG would invest only in policies where the insureds were at least 75 years old, the insurance company was reputable, and the policies weren’t subject to loopholes that could restrict payouts. It further said, “Policies offered by PWCG have a minimum total fixed return of 100%, meaning investors will double their money.”

PWCG created a trust to maintain a three-tiered payment system to keep up with premiums on all the policies. When the system failed, PWCG was put in receivership and the US Securities and Exchange Commission accused various officers and brokers of, among other things, selling unregistered securities, failing to register as broker-dealers, and securities fraud.

PWCG emphasized its special expertise and skill in choosing policies that would produce profit for potential investors, the Ninth Circuit said. The investors “were led to expect profits from the efforts of others,” and that’s all that’s required under the Howey test.

The case is SEC v. Barry, 2025 BL 281533, 9th Cir., No. 23-2699, 8/11/25.

Below are other circuit splits reported by Bloomberg Law in August.

Criminal Law

Case:

United States v. Morgan, 2025 BL 277782 (Article)

Issue:

Is the federal law that prohibits convicted felons from possessing guns constitutional on its face and as applied? The Fifth Circuit says that it is, joining the Eighth Circuit. The Sixth Circuit says it can be enforced against someone on probation for driving under the influence, and the Tenth Circuit says it’s constitutional as applied to a nonviolent felon. The Third Circuit says that the statute is unconstitutional when applied to someone convicted of welfare fraud.

Criminal Law

Case:

Arias v. Herzon, 2025 BL 288877 (Article)

Issue:

What type of conduct is meaningfully different for purposes of finding a “new context” under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics? The First Circuit says that adoption of an amendment to the Inspector General Act, which created a new way for bringing misconduct claims against federal law enforcement officials, didn’t create a new context for violations of the Fourth Amendment. But the dissent notes that the Third, Tenth, and Eleventh circuits say that new remedial structures like the IGA create a “new context” or categorically bar Bivens suits.

Employment Discrimination

Case:

EEOC v. AAM Holding Corp., 2025 BL 300084 (Article)

Issue:

Does the Equal Employment Opportunity Commission’s investigative authority end when a worker is issued a right-to-sue letter and sues? The Second Circuit joins the Seventh and Ninth circuits, saying that the EEOC retains full authority after it issues a right-to-sue letter. The Fifth Circuit reached the opposite conclusion.

Evidence

Case:

United States v. Pancholi, 2025 BL 274537

Issue:

Is there a requirement that a discovery violation must be willful before a defense witness may be excluded from testifying? The Sixth Circuit joins the D.C. and Tenth Circuits saying that bad faith should be considered, but it isn’t a prerequisite to exclusion. The Second and Ninth circuits say that bad faith must be shown.

Taxation

Case:

Oquendo v, Commissioner, 2025 BL 300063 (Article)

Issue:

Is the Internal Revenue Code’s 90-day deadline for filing a petition for redetermination of a tax deficiency jurisdictional? The Sixth Circuit joins the Second and Third circuits, saying that it isn’t. The Seventh and Ninth circuits say that it is.