Plaintiffs Fourth Amended Petition - Texas State Securities Board

78. Despite the action by the SEC against SIS, beginning in 2008, the James Defendants sold
life insurance policies to HCF. Midwest Medical was again responsible for providing
estimates of the life expectancies of the insureds. HCF and Gray used these life insurance
policies as part of the scheme to sell investments in bonded life settlement contracts.
79. The James Defendants became involved in the operations of HCF. Ronald James assisted
Gray in forming HCF in Nevada to avoid the appearance of operating out of Texas. HCF
and Gray were warned by the Texas State Securities Board that it was violating the Texas
Securities Act and Gray agreed to an Undertaking requiring him to comply with the
Texas Securities Act as noted earlier in this Fourth Amended Petition. However, HCF
continued to sell investments in bonded life settlement contracts in violation of the Texas
Securities Act and the James Defendants’ involvement and control over Gray and his
companies only grew stronger.
80. In or about 2009, Retirement Value was formed for the purpose of selling investments in
life settlement contracts referred to herein as the RSLIP Program. The James
Defendants, along with Beste, are responsible for conceiving the fraudulent scheme
perpetrated by the RV Defendants as alleged herein and aided the RV Defendants in
carrying out the scheme. The James Defendants and Beste recruited Gray to set up
Retirement Value in order to create a larger market to sell the James Defendants’ life
insurance policies and to provide Beste a referral source for future institutional investors.
81. The James Defendants and Beste played a key role in the organization and operation of
Retirement Value. For example:
A. The James Defendants and Beste assisted in the formation of RV, by determining
the state of organization, the name of the company, and the decision to organize
as a limited liability company,
B. The James Defendants and Beste identified the leading licensees from a
competing firm and recruited these licensees to sell investments in life settlement
contracts on behalf of Retirement Value,
C. The James Defendants and Beste were part of communications with licensees,
D. The James Defendants and Beste were involved in managerial decisions,
including the hiring of employees, the promotion of employees, the retention of
outside consultants and the use of materials used to market the investments in life
settlement contracts, and
E. The James Defendants provided Retirement Value a $5 million interest-free line
of credit that was used to purchase life insurance policies from the James
Defendants.
State of Texas v. Retirement Value, LLC, et al.
Plaintiff’s Fourth Amended Verified Petition Page 22 of 57