I am not a CPA or tax attorney. I still have a question for you: When did you take a loss? The fact that a policy hasn't yet matured doesn't mean you can currently define the value of the loss, unless you previously sold it back to Life Partners.
Or, were you an investor in the stock LPHI? If so, you should have been aware of potential fraud if you invested within the past 5 years or so. There were publicly available articles to warn you from Citron Research (Stock Lemon), several articles in Seeking Alpha, etc. Regardless, what to do with the stock loss seems to be well established. If you find someone with a different opinion, kindly link an article in a journal we can all read.
Investors should pursue fraud charges if they were indeed defrauded, if only because there is a moral obligation of honest people to stop future fraud. Suggesting they should not for a possible tax treatment makes me very curious about your motives.