Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, January 4, 2012

SEC Charges Life Settlements Firm with Fraud

The SEC charged Life Partners Holdings Inc. and three of its senior executives for their involvement in a fraudulent disclosure and accounting scheme involving life settlements.  Life Partners is a Nasdaq-traded company that generates virtually all of its revenues from brokering life settlements.

According to the SEC, Life Partners chairman and CEO Brian Pardo, president and general counsel Scott Peden, and chief financial officer David Martin misled shareholders by failing to disclose a significant risk to Life Partners’ business: the company was systematically and materially underestimating the life expectancy estimates it used to price transactions. Life expectancy estimates are a critical factor impacting the company’s revenues and profit margins as well as the company’s ability to generate profits for its shareholders.

The SEC alleges that Life Partners and the three executives were involved in disclosure violations and improper accounting that Life Partners used to overvalue assets held on the company’s books and create the appearance of a steady stream of earnings from brokering life settlement transactions. The SEC further charged Pardo and Peden with insider trading in their shares of Life Partners stock while in possession of material, non-public information indicating that the company had systematically and materially underestimated life expectancy estimates.

In addition to the alleged violations of the antifraud and reporting provisions of the federal securities laws by Life Partners, Pardo, Peden and Martin, the SEC’s complaint also seeks repayment to the company of stock sales profits and bonuses received by Pardo and Martin pursuant to Section 304 of the Sarbanes Oxley Act of 2002.

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