The sick business of betting against people’s lives.

Stark represents the latest iteration of the industry, which is trying to clean up its practices and attract institutional capital. But many participants remain from the Wild West days. "There is an element in our industry that doesn't want to see any regulation," says Doug Head, president of the Life Settlement Association. "The players that deal with institutional investors want to see more regulation, but not everybody does business that way." Life Partners of Texas, one of the oldest and most profitable firms in the business, deals with individual investors and has won several court cases arguing that life-settlement investments are not securities.

Congress is taking note. Last month, Sen. Herb Kohl chaired a special committee meeting on the dangers of life settlements. He has contacted the IRS and SEC to discuss the gaps that may be left by state-by-state legislation, and the SEC has agreed to look into the registration and regulation of life-settlement providers and brokers.

Meanwhile, life settlements continue to be sold to individual investors. The recent activity by the Senate, coupled with the general climate surrounding exotic investments, seems to have jarred the SEC into action. But until concrete steps are taken, it will be difficult for investors and policyholders to know if they are making legal, well-informed decisions. And every new fraud scandal only scares off the kind of institutional investors the business needs most. Major firms in the life-settlement market may resist regulation, but they're digging their own grave.