May 17, 2016

Texas Fraud Cases: Houston Municipal Employees Pension System Sues BOFl, Dallas Police and Fire Pension System Accuses Financial Adviser of Fraud, and SEC Accuses Two Attorneys of $13M Escrow Scheme

Houston Pension Fund Accuses Bank of Fraud
In the U.S. District Court Southern District of California, the Houston Municipal Employees Pension System has filed a securities fraud case against Bofl Holding (BOFI) Inc. The pension fund claims that the bank employed illegal lending practices and depended on off-balance-sheet entities to enhance profits.

According to the plaintiff, Bofl did not disclose its use of off-balance-sheet entities to buy lottery receivables, failed to put into place a healthy compliance system, and gave loans to foreign nationals even though they had suspect or criminal histories. The Houston pension fund also believes that Bofl did not fully disclose to investors that it had been subject to regulatory and government subpoenas or that there were pending federal probes against it.

Dallas Pension Fund Files Lawsuit Against CDK Realty Advisors
The Dallas Police and Fire Pension System is suing CDK Realty Advisors. The Texas pension fund claims that the advisory firm directed it toward risky deals while making excessively high fees and garnering other benefits. The plaintiff is seeking to recover millions of dollars.

CDK Realty Advisors once managed over $700M for the Dallas pension fund. Now, the latter is claiming multiple breaches of fiduciary duty. It is also claiming write-downs and losses of over $320M because of the risky investments. The Dallas Police and Fire Pension System says that CDK should have done a better job of protecting the fund’s members.

Continue reading " Texas Fraud Cases: Houston Municipal Employees Pension System Sues BOFl, Dallas Police and Fire Pension System Accuses Financial Adviser of Fraud, and SEC Accuses Two Attorneys of $13M Escrow Scheme " »

May 11, 2016

Texas Securities News: Round Rock Man Goes to Jail Over $4.5M Ponzi Scam, Linn Energy Files for Bankruptcy, Judge Says Wyly Brothers Committed Tax Fraud

Texas Oil and Gas Ponzi Scam Leads to 13-Year Prison Term
The owner of RHM Exploration has been sentenced to over 13 years months behind bars for a Texas oil and gas Ponzi scam that raised about $4.5M from investors. William Risinger must pay more than $3.7M to those whom he bilked.

Risinger pleaded guilty to criminal charges of money laundering and wire fraud. From 11/10 to 6/14 he stole funds from investors for three gas, oil, and mineral ventures that were scams. Court documents state that he used proceeds from his fraud for his own spending and for ‘lulling” payments to make it appear to investors as if the joint venture they put their money into was running promised.

As part of his sentence, Risinger will spend 160 months in prison and serve three years of supervised release.

Linn Energy Seeks Chapter 11 Bankruptcy Protection
In other oil and gas news, Linn Energy LLC (LINE) has filed for Chapter 11 bankruptcy. The Houston-based company cited weak energy prices as a reason for having to seek protection.

Continue reading "Texas Securities News: Round Rock Man Goes to Jail Over $4.5M Ponzi Scam, Linn Energy Files for Bankruptcy, Judge Says Wyly Brothers Committed Tax Fraud " »

April 21, 2016

Texas-Based Linn Energy Extends Deadline for Exchanging LINE Units for LNCO Shares

Linn Energy (LINE) says that its unit holders have until April 25 to exchange their units for LinnCo shares. According to, the Texas-based company is making the deal to avoid CODI (cancellation of debt income).

As it stands, Linn Energy has suspended its distribution and is making interest payments on its unsecured debt just in time before its 30-day grace period to make the payments ends in order to avoid a default. According to, the energy player paid interest of $60M on senior debt. At some point, Linn Energy may have to file for bankruptcy.

This month, Zach Investment Research downgraded Linn Energy shares from a buy rating to a hold one. It sent investors a research report with this new information. Stifel Nicolaus (SF) also lowered shares of the oil and gas company from a hold rating to a sell one in February. In March, Robert Baird lowered its target price on Linn Energy shares and established a neutral rating for the company in its research note. In December, Barclays (BARC) reaffirmed its hold rating of the shares. Ladenburg Thalmann downgraded Linn Energy from neutral to a sell rating and Citigroup (C) did the same in its research note.

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April 18, 2016

Commodity Trading Cases: Galileo Trading Fined Over $1.6M, Trader Ordered to Pay More than $141K for Aiding and Abetting Fraud, and Criminal Defendant Must Pay Over $4.7M in Restitution

Galileo Trading to Pay Penalties and Restitution to Settle Commodity Futures Fraud Charges
The U.S. Commodity Futures Trading Commission is filing fraud charges against Nathan Schleifer and his Galileo Trading LLC. Schleifer and his firm are accused of fraudulently soliciting customers to get them to trade commodity futures and for making a number of false statements and material representations to the National Futures Association about their trading practices.

The SEC said that from at least ’99 – ’14, Schleifer and his firm fraudulently obtained at least $2.8M from a number of people for supposed trading in a pooled investment in commodity futures. The Commission claims that Galileo and Schleifer misrepresented to pool participants that they’d had previous success trading in futures. They also purportedly claimed that they were making a lot of money for these pool participants when in reality there were substantial losses.

Schleifer is accused of falsely claiming that he was a skilled money manager. He guaranteed investors minimum returns and told them their money was safe. When at least one individual tried to take money out, Schleifer said he lost the funds during a flash crash in May. Later, he admitted that he lost all of the investor’s money years ago.

CFTC Permanently Bans Trader from Registering with the CFTC
The CFTC has settled charges against Brian Hinman for aiding and abetting a commodity pool fraud involving a number of Texas-based entities owned by Kevin G. White and for the fraudulent solicitation of participants to get involved in Revelation Forex Fund, a foreign currency exchange pool. It was in 2013 that the CFTC filed a federal court action against White and his KGW Capital Management, LLC and RFF GP, LLC. They were ordered to pay $3,365,888 in restitution and a civil penalty of over $4.1M. White is now serving prison time for mail fraud.

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March 22, 2016

Texas Adviser Barred by State Over Fraudulent Life Settlement Sales

Fort Worth-based investment adviser James Poe has been barred by the Texas State Securities Board from serving as a financial representative or broker in the state. According to the Board, Poe engaged in fraudulent sales practices involving life settlements.This is Texas securities fraud.

The Texas adviser, who is the president of Jim Poe & Associates, Inc., was the recipient of undisclosed payments through International Alternatives PR, which he also owns. The state says that firm consulted on life insurance policy selections and represented activity that was fraudulent.

Poe is also accused of getting paid 10% commission for product sales from ’11 to ’15 even though he was an unregistered agent at the firm. Such payments would be a violation of Texas law. During that period he purportedly recommended investments to certain individuals, who were promised a 75% return. What these investors didn’t know is that in addition to paying for the policy and its premiums, the “associated costs” they agreed to take on included the 10% commission to Poe and undisclosed payments (20% of what they invested) to International Alternatives PR, which consulted and identified which policies to choose.

The Texas State Securities Board’s order said that failure to disclose that 20% of what investors paid went to the firm, which Poe owned, was a failure by the firm to disclose material facts and that this type of activity was fraudulent. The state said that seeing as 30% of investor money went to Poe and his company, this posed a material risk to what an investor could potentially make.

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February 25, 2016

Independent Brokerage Firms that Sold UDF REITs May Be Subject to Arbitration Claims Over Alleged Ponzi Scam

According to InvestmentNews, a number of independent broker-dealers could find themselves in legal hot waters, should investors decide to pursue them through arbitration for selling UDF real estate investment trusts. United Development Funding is under investigation over allegations that the UDF IV was run for years like a Ponzi scam. UDF IV was initially a nontraded real estate investment trust that later became listed as a publicly traded REIT.

The article goes on to name four firms that sold the UDF REITs or private deals to investors: Financial Services Inc., Berthel Fisher & Co., VSR Financial Services Inc., and Centaurus Financial Inc. Other firms also have sold UDF REITs to investors.

The allegations against UDF first surfaced in December in an anonymous post published on Harvest Exchange, an investor website. Among the accusations: that the UDF umbrella demonstrated traits “emblematic” of a Ponzi scam; new capital was used pay existing investors; and newer UDF companies were giving liquidity to earlier UDF companies to pay earlier investors. Noting that a hedge fund had created a short position in UDF IV shares, the company accused the fund of trying to illegally profit by depressing and manipulating UDV IV’s share price.

Recently, J. Kyle Bass of Hayman Capital also published a website about the allegations. On the site, Bass acknowledged that Hayman maintains a short position in UDV IV common stock.

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February 19, 2016

The FBI Raids UDF IV Offices in Dallas, Texas

The Federal Bureau of Investigation has raided the Dallas offices of United Development Funding. The publicly traded real estate investment trust recently came under fire amid allegations that it has been run like a Ponzi scam for years.

Since the accusations against UDF IV were published on the Harvest Fund website, the REIT’s stock has dropped 81% in the last two months. News that the FBI went to the UDF headquarters caused the company’s share price to plunge nearly 55% during the raid on Thursday to close at $3.20/share.

UDF IV has denied the allegations that it is a Ponzi scam. Following news of the accusations, It filed a complaint with the U.S. Securities and Exchange Commission alleging that it was the victim of a “short and distort” securities trading scam involving an investor that was building up a short position in a stock. The aim , said UDV, was to illegally manipulate shares. In December, UDF revealed that it has been under investigation in a fact-finding probe by the SEC since 2014.

This month, hedge fund manager Kyle Bass said that he is the one who has been shorting UDF. He accused the nontraded REIT of using new investor funds to pay existing investors and exploiting “Mom and Pop” retail investors. Bass’s Hayman Capital Management LP has been betting against UDF IV shares. He was the one who made the Ponzi scam claims against UDF at the end of last year.

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February 8, 2016

Texas Hedge Fund Manager Accuses United Development Funding IV of Ponzi Scam

J. Kyle Bass, the hedge fund manager who runs the Dallas-based Hayman Capital, has set up a website accusing Texas-based REIT United Development Funding IV of running a Ponzi-like real estate scam. On the site, Bass published a letter to readers, claiming that his firm had conducted research and found that the nontraded real estate investment trust displayed characteristics in line with a billion-dollar Ponzi scheme.

Bass contends that UDF used money from a public affiliate to rescue its first fund. According to Business Insider, Bass also claims that UDF management has been distorting its poor track record and the financial state of its affiliates going as far back as the financial crisis. He alleges that UDF has been taking advantage of retail investors and using UDF- controlled entities and real estate backed loans to conceal the fact that new investors money is b used to pay existing investors.

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February 1, 2016

Texas Securities Commissioner Orders Firm To Stop Selling Pension Streams

John Morgan, the Texas securities commissioner, is ordering SoBell Corp. and its owner Andrew Gamber to stop selling its Pension Income Stream Program in the state of Texas. SoBell, which is based in Mississippi, executes agreements with pension benefits recipients to sell their income stream to investors for $35K to over $1K, while offering 7-8% in yearly returns.

Morgan says that the company and Gamber committed fraud by selling unregistered securities and making statements to investors that were “misleading and deceiving.” SoBell also is accused of executing agreements with pension benefit recipients that gave the company authority to sell pension-sourced income to investors.

As for Gamber, he allegedly did not disclose that he had been subject to sanctions in Pennsylvania, Arkansas, New Mexico, and California. The four states had issued cease and desist orders against Voyager Financial Group, LLC, Gamber, and people who sold the unregistered securities. They also are accused of misleading investors about the risks involved in certain investment products, including default rates involving pension income stream sales made by companies that Gamber controlled, and they purportedly did not disclose that making pension payment assignments is against federal law.

Disabled persons, veterans, military members, and federal government employees are among those that typically get involved in pension-sourced income. The Texas Securities Board says that often these investors are solicited while they are under “financial distress.”

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January 23, 2016

SEC Wants Lawyer to Pay $2.5M Penalty in Texas Securities Case

The U.S. Securities and Exchange Commission has filed a motion for summary judgment in its case against Gregory Jones. The Texas lawyer is facing civil charges accusing him of defrauding investors in two securities offerings, including a fracking water filtration deal and an oil and gas exploration venture.

Now, the SEC wants Jones to pay a $2.5M civil penalty, disgorgement of $985K, further disgorgement of $480K, and $17K in prejudgment interest.

The regulator, in its original complaint that it submitted last year, claims that Jones represented Swiss and French investors who invested about $6M in Edwards Exploration. The attorney had a deal with the company in which he would get paid for providing due diligence related to the investors' shares. The fees he received under the agreement were about $480K. However, claims the Commission, Jones did not tell investors that the money came from their principal cash.

The SEC also says that from ’13 through at least ’14, Jones sold and offered securities that were put out by Aquaphex, which was supposedly a business that was involved in recycling fracking water. He raised about $64K from nine investors. However, contends the Commission, the investment documents for the company included false statements, including a claim that investors could end up making over 115% a year on the securities the they bought.

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January 22, 2016

Investors Files Texas Securities Case Alleging Violations by United Development Funding IV

Investors have filed a class action securities case claiming that the Texas nontraded real estate investment trust United Development Funding IV (NASDAQ:UDF) and certain of its officers violated federal securities laws. The complaint come a month after the Harvest Exchange website published a report accusing the Company of running a Ponzi-like scam. The UDF umbrella is accused of raising capital to bail out its earlier vintage entities.

On December 10, 2015, the day that the report went out, UDF’s shares dropped significantly. The Company then put out a press release disclosing that its UDF IV and UDF III have been cooperating for nearly two years with the U.S. Securities and Exchange Commission, which has been conducting a non-public probe since early 2014. Following that announcement, Company shares fell even further, negatively impacting investors.

The Texas securities case accuses the defendants of, from June 4 – December 10, 2015, failing to disclose that:

· New UDF companies gave older UDF companies substantial liquidity, letting them pay earlier investors.

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January 14, 2016

FINRA Files Securities Case Against Texas Firm Over Churning Allegations

The Financial Industry Regulatory Authority claims that Caldwell International Securities Corp. engaged in the churning of customer accounts and that this purportedly resulted in $1 million in excess commissions for the firm. The self-regulatory organization says that the alleged violations began in 2011.

According to FINRA, the Texas-based company’s founder Greg Caldwell and supervisors Lennie Freiman and Paul Jacobs decided to ignore that four OSJs (offices of supervisory jurisdiction), three in New York and one in New Jersey, were churning customer accounts and making yearly commission revenues of at least 100% of the customers' equity.

The regulator said that brokers at the OSJs contacted foreign investors to persuade them to take part in speculative stock and option trading. Even after 15 customers lost $1.1M and paid over $1M in commissions and fees, Caldwell and its supervisors purportedly still did not take any action.

Cost-to-equity ratios in customer accounts are believed to have varied from 18% to over 100%. The firm is also accused of not reporting that it had been the subject over three dozen customer complaints.

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November 23, 2015

Man Pleads Guilty to $5.4M Texas Investment Fraud

Robert B. Hahn has pled guilty to wire fraud and money laundering in a $5.4M Texas financial fraud that bilked about 100 investors. He faces up to 20 years behind bars.

According to information presented before the judge, from 1/07 to 2/15, Hahn, who was an insurance agent, claimed to represent doctors in Tyler, Texas that were supposedly raising funds for the construction and renovation of health care facilities, debt retirement, and the purchase of medical equipment. Investors were told that the doctors would pay a 20% yearly interest rate on investments and loans.

Instead, Hahn took investors’ money and deposited them into his personal accounts or his insurance business. He would make cash “interest” payments to investors. This money was supposed to be a 20% return on the fake investments or loans when, in truth, the funds were, in Ponzi scam-like fashion, coming from the money given to him by other investors.

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November 16, 2015

Southwest Securities Found Liable for $5.45M in Texas Investment Fraud

A Dallas jury says that Southwest Securities Inc., which is a broker-dealer owned by PlainsCapital subsidiary Hilltop Holdings, and broker Leighton Stallones are liable for statutory fraud, fraud, and conspiracy and violation of securities laws related to a 2007 real estate scam. Now, the firm must pay two investors, SSST Riviera Investments Ltd. and Gerritsen Beach Investments Ltd., more than $5.45M in the Texas securities case—$2.9M and $2.55M, respectively.

According to the two entities, Stallones assisted developer Stephen Jemal in concealing the scheme by lying about how his brokerage accounts were doing. Jemal is accused of modifying account records to make it seem as if he had millions of dollars when some of his accounts held under $1,000.

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September 26, 2015

Broker Fraud News: Ex-Dallas Broker Faces Prison, Fintegra Files for Bankruptcy, and Broker Who Promised Investors They’d Double Their Money Can No Longer Sell Securities

Ex-Dallas Broker Accused of Texas Securities Fraud Face Five Years
Wade Lawrence, a former Dallas broker, has pleaded guilty to Texas securities fraud. As part of his plea bargain the 43-year-old will have to forfeit $1.5 million and pay over $250,000 in fines. He also faces up to five years behind bars for his $2.1 million securities scam.

According to prosecutors, over the course of working for several securities firm over the last seven years, Lawrence falsely offered risky investments with the promise of 20% to 100% returns. He lost a significant amount of money and invested just a portion of investors’ funds. Lawrence used a lot of investors' cash to cover his own living expenses, personal travel, as well as pay for fancy jewelry. The Associated Press reports that to date Lawrence has given back $581,000 to investors.

Minnesota-Based Brokerage Firm Files for Bankruptcy
Broker-dealer Fintegra has filed for bankruptcy in U.S. Bankruptcy Court in Minnesota. The firm had to stop its securities business in June after it was hit with a $1.5M arbitration award that placed it under the $250,000 regulatory net capital requirements of minimum.

According to the FINRA arbitration panel, Finestra and a broker violated state anti-fraud provisions related to the sale of Miasole Investments II, an unregistered security. The securities fraud complaint, submitted by Fintegra customers, states that the broker-dealer could only pay $300,000 of the award. However, InvestmentNews reported that the attorneys for one of the clients said that to date none of the award has been paid.

Fintegra, in its FOCUS report with the SEC, admitted that it had been named in five separate lawsuits, all involving the alleged sale of securities that were either unsuitable or violated state securities laws.

Continue reading " Broker Fraud News: Ex-Dallas Broker Faces Prison, Fintegra Files for Bankruptcy, and Broker Who Promised Investors They’d Double Their Money Can No Longer Sell Securities" »

August 5, 2015

Houston-Area Business Man Charged with Running $114M Texas Ponzi Scam

The Securities and Exchange Commission is charging Frederick Alan Voight with Texas securities fraud in running an alleged $114 million Ponzi scam that bilked investors. The regulator claims that the Houston-area man defrauded over 300 investors via multiple offerings of promissory notes that his companies DayStar Finding LP and F.A. Voight & Associates LP had issued.

In its complaint, the SEC said Voight recently raised $13.8 million that he claimed would be a loan to InterCore Inc., a company start up. The loan was supposed to fund the deployment of a DADS—a Driver Alertness Detection System.

Voight allegedly told prospective investors that the technology was to be installed in millions of buses and trucks. He promised 30 to 42% yearly interest rates on the promissory notes to be paid out by the company, which he said it could do “many, many times over.”

However, the Commission claims that Voight as aware he was making false claims because he was an InterCore board member and knew that the company was financially beleaguered and could not repay the loans. Voight allegedly used the money from new investors to pay off earlier investors or funnel them to InterCore via another two partnerships that belonged to him. The money would then be sent to subsidiary InterCore Research Canada, Inc.

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July 2, 2015

SEC Appeals Its In-House Agency Judge’s Decision to Throw Out Charges Against Financial Advisers Paid by Fidelity to Push Specific Mutual Funds

Securities and Exchange Commission employees are appealing a ruling by an administrative law judge dismissing charges against two financial advisers accused of not notifying clients that Fidelity Investments (FNF) had paid them to sell specific mutual funds. In the Texas securities case, SEC Administrative Law Judge James E. Grimes rejected claims that The Robare Group and two of its owners violated the law by failing to adequately disclose that they had a financial relationship with the brokerage firm. Grimes said that from listening to Mark L. Robare and his son-in-law Jack L. Jones Jr. testify, he was hard pressed to imagine them attempting to bilk anyone. This is one of the few cases presided over by one of its judges that the SEC has lost.

Fidelity is The Robare Group's custodian. For the last 11 years, the registered investment advisor has been part of a program in which Fidelity pays it a portion of the revenue earned from the sale of certain third-party mutual funds. The payment goes to the adviser who made the mutual fund sale happen.

Advisors are given access to the funds without any transaction fees. As the custodian, Fidelity refers to payments made to advisers not as commission but as compensation for shareholder administrative fees.

In their appeal, the SEC staffers said that they feared Grimes’ ruling in this case establishes a troubling precedent that shifts the burden of full disclosure of a conflict interest from an investment adviser to a compliance consultant. They said this could allow an investment adviser to be excused from certain securities violations as long as he has a compliance consultant that has not “affirmatively” objected to a “particular disclosure.”

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June 27, 2015

Federal Judge in Texas Says Law Firms Must Face Lawsuit Seeking Creditor Payments in Stanford Ponzi Fraud

Four years after Allen Stanford’s $7 billion Ponzi scam was uncovered in 2009, investors who lost money in the scheme are still trying to recover their funds. The 65-year-old Stanford is serving 110-years behind bars for selling investors bogus high-yield CD’s through his Stanford International Bank based in Antigua. Prosecutors said he used customers’ money to fund his expensive lifestyle.

This week, U.S. District Judge David Godbey in Dallas said that law firms Proskauer Rose and Chadborne & Parke will have to contend with claims brought by a committee of these investors and Ralph S. Janvey, the court-appointed receiver for Allen Stanford’s companies.

Chadborne and Prosakuer had sought to have this lawsuit, which seeks to hold the two law firms liable for legal malpractice, dismissed. The plaintiffs contend that Thomas Sjoblom, who worked at the two firms, allegedly obstructed regulator probes into the Ponzi Scam and helped Stanford conceal the SEC’s investigation from auditors.

Now, the Texas-based judge has decided that Janvey and the investor committee can pursue claims of negligent supervision, professional negligence, civil conspiracy, and aiding and abetting fraud against the two firms. Judge Godbey stated that the allegations suggest that Sjobolm knew that Stanford was potentially running a Ponzi scam, and this awareness was imputed to both firms. Godbey said that the plaintiffs have alleged that the defendants knew that Stanford was engaged in sufficient wrongdoing.

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June 18, 2015

San Antonio Spurs’ Tim Duncan Addresses $20M-Plus Texas Securities Case Against His Former Financial Adviser

Earlier this year, our securities law firm published a blog post reporting that San Antonio Spurs’ Tim Duncan had filed a Texas securities case against financial representative Charles Banks. Duncan contends that due to unsuitable recommendations made to him by Banks, he allegedly lost some $25 million.

Banks, a private-equity investor, was Duncan’s adviser for nearly two decades, since the beginning of his professional sports career. The NBA All-Star says that Banks persuaded him to get involved in investments that were bad for Duncan but good for the financial adviser. He also claims that Banks forged his signature and withheld his return on a loan. The San Antonio Spurs star says that over the years, he’s invested millions of dollars in products and businesses that Banks either owned or had a financial stake in.

Meantime, Banks claims that Duncan’s losses are because of the player’s own impatience or due to misunderstandings. He argued that Duncan is using the Texas securities case to exit certain limited partnership investments.

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June 9, 2015

Trustee Says that Texas Company Life Partners Holdings Bilked Investors

According to bankruptcy trustee H. Thomas Moran II, Life Partners Holdings (LPHIQ) ran a scam to bilk its investors. The Texas company, which sold over $1.3 billion of fractional interests in individual life insurance policies to over 20,000 individuals, is accused of unnecessarily demanding that a lot of investors pay yearly premiums on policies that had enough funds to pay for future premiums. Many of these investors were forced to resell or abandon these investments while company insiders made money.

Now, Moran wants a court to give him permission to pool all of the policies and use accessible cash to pay premiums where necessary. This would relieve investors of having to continue to put more of their funds into the scam to keep their investments.

Life Partners used to be a huge player in the secondary market for life insurance. The company makes arrangements to purchase life insurance policies from people. Life Partners would then divide up the policies into fractional interests. Retail investors would buy the rights to collect on them.

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