Life Partners Holdings Inc., its CEO Brian D. Pardo, and general counsel R. Scott Peden must pay $46.9M in penalties and disgorgement. This is the final judgment in the wake of a verdict in the U.S. Securities and Exchange Commission’s civil case. The jury found them liable for submitting securities filings that were misleading and untrue. Life Partners sells life insurance investments.
U.S. District Judge James Nowlin, in his judgment, said that oversight and compliance at the Texas-based company “were non-existent.” He accused the defendants of serious violations of securities laws.
The judgment is a partial vindication for the SEC. After the verdict was issued earlier this year, both sides declared the outcome a victory for each.
The Commission accused the company of accounting and disclosure fraud that went on for years involving allegedly misleading marketing practices when selling life insurance investments to investors. While jurors found Life Partners liable for securities fraud involving revenue-recognition practices, they rejected the regulator’s main fraud and insider trading claims. The main allegations was over the claim that Life Partners gave inaccurately short estimates for the duration that insured individuals were expected to live, which is a key factor of the investment equation.
With life insurance investments, an investor buys the right to get an individual's life insurance benefits, while the person who owns the policy receives a lump sum. The investor then keeps paying premiums, with the hope of ending up receiving more than what is spent. Investors, however, won’t get as high of a return or can sustain financial losses if the insured lives longer than estimated.
The jury found that Peden and Pardo were also liable for helping in and abetting Life Partner’s submission of false reports. They ruled that Pardo was responsible for the false certification of Life Partner’s filings.
Under Nowlin’s judgment, Life Partners must pay $23.7 million in civil penalties and $15 million in disgorgement. Pardo must pay $6.2 million in civil penalties, while Peden has to pay $32 million.
Life Partners is still contending with civil court actions by individual investors. There is also a class action securities case that was filed four years ago. Earlier this year, a district judge in Texas refused to throw out the claims made by those plaintiffs.
Also, Life Partners is dealing with a separate case brought state securities regulators. That lawsuit is now at the Supreme Court of Texas. The state has accused Life Partners and a number of affiliates of fraud related to the sale of securities.
Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm. Please contact our securities attorneys for your free case consultation.
SEC's $47M Life Partners Win Could Derail Investor Class Action, Litigation Daily, December 3, 2014
Mixed Verdict in SEC Suit Against Life Partners, The Wall Street Journal, February 4, 2014
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