Filed Under:Life Insurance, Life Planning Strategies

SEC Brings Up Charges on Life Partners Holdings

The SEC announced on Jan. 3 that disclosure and accounting fraud charges will be levied against Life Partners Holdings Inc., (NASDAQ GS: LPHI) a Waco-based, publicly traded life settlement firm that is considered a pioneer in the secondary market.

The SEC also alleges that CEO Brian Pardo, general counsel Scott Paden and CFO David Marten misled shareholders by failing to alert them of an important and essentially detrimental risk that the company was taking. The allegations state that Life Partners Inc., was “systematically and materially underestimating the life expectancy estimates that it used to price transactions.” The three executives are alleged to have then overvalued the assets held on the company’s books in the interest of creating the appearance of a consistent flow of income from the life settlement transactions.

The allegations state that since 1999, Life Partners Inc. have utilized the services of a Dr. Donald T. Cassidy, a Reno, Nev.-based  hematologist/oncologist, records show, with no actuarial training. Dr. Cassidy apparently utilized a life expectancy methodology that was formulated by a former underwriter and current partner in the company that underestimated life expectancies therefore making the policies that were being sold appear more attractive to investors. Dr. Cassidy was busy with patients when NU called.

Life Partners is the world’s oldest and one of the most active companies in the United States engaged in the secondary market for life insurance, commonly called “life settlements.” It was incorporated in 1991 and  has completed over 137,000 transactions for its worldwide client base of over 28,000 high net worth individuals and institutions in connection with the purchase of over 6,400 policies totaling approximately $3 billion in face value, according to the company. 

The SEC alleges that during the process of artificially underestimating the life expectancy of policyholders that Pardo and Paden then sold $11.5 million and $300,000 respectively in Life Partners stock at inflated prices.

In an emailed statement, Life Partners’ Chairman Pardo, stated, “It is very disappointing that the SEC has chosen to pursue litigation over issues that we believe have no merit and financial presentation issues that we do not believe are material.  We have always done our best to deliver value to our shareholders and to run an honest and transparent company. We intend to vigorously defend ourselves against these meritless claims.”

The lawsuit, the company noted, targeted Life Partners Holdings, Inc. and certain of its officers, but no claims were filed against the company’s operating subsidiary, Life Partners, Inc., and the action has no effect on any of Life Partners, Inc.’s transactions or clients.

LPHI was trading down 18.68%, at about 5.18 per share midday on Wednesday, according to TheStockMarketWatch.com.

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