Life Partners, Inc.

Life Partners, Inc.[1] is a life settlement provider headquartered in Waco, Texas. LPI's parent company, Life Partners Holdings, Inc.[2] delisted from the NASDAQ and currently trade on the OTCPK under the ticker LPHI.Q. This follows the company seeking Chapter 11 bankruptcy protection, resulting from a total of $46.9 million in penalties levied against the company and two officers.[3]

The architect of life settlements

Life Partners Inc. is the world’s oldest life settlement provider and one of the most active companies in the world engaged in the secondary market for life insurance.[4] Life Partners Inc. is the architect of the newest asset class, life settlements;[5] which has grown over the past decade to become an $80 billion industry.[6] By selling the policy, the policy holder receives an immediate cash payment to use as he or she wishes.

Return on investment is computed from the difference between the cost basis (including any premiums paid) and the amount paid out under the policy upon the demise of the insured. After the policy pays out, an annualized return on investment may be derived from this yield by adjusting it for the holding period of the investment.[7]

Life settlements are an alternative, long-term investment unaffected by market conditions, global economy, or world events. Life settlements provide the opportunity for long-term growth and a superior return potential[8] which is not linked to the performance of traditional financial markets.

Serving senior citizens

Through life settlements, the secondary market for life insurance[9] provides more options for policy owners to pursue[10] when they no longer want or need their current life insurance policy.[11] Many seniors paying premiums on life insurance policies cannot afford to continue. Premiums have skyrocketed and the need for the policy has diminished. More than 85% will simply let their policies lapse.[12] Most likely, they are unaware they can sell these policies for four to ten times the cash value in the secondary market.[13] If seniors give the proceeds from their life insurance policy sale to charity, they may reap substantial tax benefits.[14]

Financial information

Life Partners filed for Chapter 11 bankruptcy protection on January 19, 2015.[15]

Since its incorporation in 1991, Life Partners Inc. has completed over 150,000 transactions and generated a total business volume of over $3.2 billion in face value of policies for its worldwide client base of over 29,000 high-net-worth individuals and institutions in connection with the purchase of over 6,500 policies.[16][17]

Life Partners Inc. utilizes Advance Trust & Life Escrow Services, LTA[18] for its life settlement transactions. ATLES is supervised and regulated by the Texas Department of Banking and is responsible for the custody and dispersion of LPI client funds.

Company executives

December 2014: LPHI loses lawsuit with the SEC. LPHI, Pardo and Peden ordered to pay a total or $46.9 million in penalties

A federal judge ordered Life Partners Holdings Inc and two top executives to pay $46.9 million for misleading investors about the core aspects of its business. The U.S. Securities and Exchange Commission had sued Life Partners in 2012 and sought to prove that Life Partners intentionally misled investors over nearly four years about core aspects of its "life-settlements" business and that its two top executives engaged in insider trading. U.S. District Court Judge James Nowlin on Tuesday ordered Life Partners to pay $15 million in illegal profit and $23.7 million in civil penalties. Chief Executive Brian Pardo was ordered to pay a $6.2 million in civil penalty, while general counsel and secretary of LPHI, R. Scott Peden, was given a $2 million civil penalty. Judge Nowlin reversed a jury finding in March that Life Partners and its executives were liable on one count of fraud.[19] "In ordering this significant monetary relief, the court recognized the egregious nature of their misconduct, noting that the defendants engaged in 'serious violations' of the securities laws, that they 'deprived the investing public of the information it needed to make a fully informed decision about whether to invest in Life Partners," said Andrew Ceresney, SEC's enforcement director.[20]

October 2014: Life Partners Inc. unilaterally imposes new fees on investors

On October 15, 2014, Life Partners Inc. unilaterally imposes New Fees on Investors without advance warning, dialog or recourse. As such investors received unexpected letters and bills for thousands of dollars. When phoned, customer service representatives explained that administering contracts was too expensive from them to continue without charging excessive new fees. They explained that monitoring contracts, having a web site, and manning the phones had not been built into their fees on the initial contracts (their business shortcoming or mistake) and that now investors had to pay these new fees in order for LPI to provide basic business services. They claim that this service was provided for free for the last so many years.

April 2014: Life Partners sues Charles Schwab subsidiary for counterfeiting

On April 15, 2014, Life Partners Holdings, Inc. filed suit against optionsXpress, Inc., a subsidiary of The Charles Schwab Corporation, the company's Chief Financial Officer, and one of the company's largest customers for issuing and selling counterfeit shares of Life Partners Holdings stock.[21]

The lawsuit, filed in Illinois by California attorney Gary Aguirre, whose practice focuses on market manipulation, asks the Court for an order preventing the Schwab subsidiary from creating and selling shares of Life Partners Holdings' stock which were not authorized by the company. The action also asks the Court for protection from securities fraud, deceptive business practices and civil conspiracy arising from the unlawful issuance of the counterfeit shares.

Under the law of Illinois, Texas, and every other state, a company has the exclusive right to issue and sell its own stock. The creation and sale of counterfeit or "phantom" stock by brokers and their customers violates these laws.

The lawsuit is based on findings in an administrative proceeding by the U.S. Securities and Exchange Commission against optionsXpress and the other defendants which concluded that optionsXpress, its chief financial officer, and one of its biggest customers committed securities fraud by engaging in the sales of hundreds of millions of dollars in counterfeit-phantom stock passed off as the genuine stock of 25 public companies, including almost $5.5 million of counterfeit-phantom stock of Life Partners Holdings, Inc.[22]

The company is continuing to investigate other persons and entities who may have engaged in counterfeiting shares of Life Partners Holdings, Inc.

March 2014: Life Partners cleared of all fraud claims

Life Partners Holdings, Inc. announced today that an Austin Federal court has ruled that the Securities and Exchange Commission failed to prove any of its fraud claims against Life Partners and its CEO, Brian Pardo, and General Counsel, Scott Peden. The ruling followed a jury finding in February that neither Life Partners, Mr. Pardo nor Mr. Peden committed securities fraud under Rule 10b-5 and that Mr. Pardo and Mr. Peden did not engage in insider trading.In the earlier ruling, the jury had found in favor of the SEC's fraud claim under Section 17(a) relating to the company's revenue recognition policies. That claim, which a government attorney characterized as "a lead" claim in the case, was challenged by Life Partners on the basis that it was not supported by any evidence.

The United States District Court for the Western District of Texas, Austin Division agreed with Life Partners that there was no evidence to support the revenue recognition claims for the period of time in question and ordered that judgment be entered in favor of Life Partners, Mr. Pardo and Mr. Peden on that issue. As a result of this ruling, the Company, Mr. Pardo and Mr. Peden have been completely exonerated from any allegations of fraud alleged by the SEC.The Court let stand the jury's findings against Life Partners relating to bookkeeping, reporting and certification by the CEO on the company's financial statements, none of which involve fraud or knowingly or recklessly misleading shareholders. The case is SEC v. Life Partners Holdings, Inc. et al., Civil Action No. 1-12-C V-33-JRN in the United States District Court for the Western District of Texas, Austin Division.[23]

December 2013: Plaintiffs dismiss lawsuit against Life Partners—class certification denied

Life Partners Holdings, Inc. announced on December 4, 2013 that the plaintiffs have voluntarily dismissed a lawsuit filed against the company as well as its operating subsidiary, Life Partners, Inc., and two corporate officers. The abandonment of the lawsuit comes after the United States District Court for the Northern District of Texas denied a motion for class certification in the lawsuit. Life Partners, Inc. is a life settlement provider and provides purchasing agent services for life settlement transactions. A life settlement is an alternative investment involving the purchase of an existing life insurance policy at a discount to its face value.

While the plaintiffs in the case could have appealed the denial of the class action or continued to pursue the case as individuals, they elected instead to voluntarily dismiss the case against the Life Partners defendants. A key allegation was that Life Partners’ medical consultant used an unreasonable method of estimating life expectancies. However, this allegation was criticized by the Court as part of its 34-page order denying certification as a class action:

“Proof only of results does not address these factors. Nor could an after-the-fact analysis of the insureds’ deaths, in the aggregate, establish that LPI was unreasonable in using Dr. Cassidy when and how it did. The Court is highly skeptical that an analysis of results alone could lead a reasonable juror to determine that Dr. Cassidy’s methods were flawed.”

Life Partners CEO Brian Pardo commented, “This is yet another example of attorney-driven litigation which damages the entire economy, not to mention the companies that are the targets of such litigation. We are very pleased that the plaintiffs decided to walk away from this case and we hope to see other similar case s end the same way.”

The case is styled Sean Turnbow et al. v. Life Partners, Inc. et al., Case No. 3:11-CV-1030-M, United States District Court for the Northern District of Texas, Dallas Division.[24]

In January 2012, the SEC filed a civil action against Life Partners Holdings and three of its senior executives for an alleged fraudulent disclosure and accounting scheme involving life settlements.[25] The SEC alleged that Life Partners’ chairman and CEO, the president and general counsel, and the chief financial officer 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.[26]

In 2011, a securities fraud class action lawsuit was filed on behalf of current and former shareholders Life Partners Holdings, Inc. The lawsuit alleged that LPHI violated US federal securities laws by misleading its investors by issuing false financial statements and reports. The allegedly misleading statements led to LPHI’s stock price to increase and then dramatically plummet upon the uncovering of the misleading statements made by LPHI, thereby causing LPHI investors to suffer financial losses. On November 22, 2012, the court heard oral argument from the parties on the defendants’ motion to dismiss. The court has not issued a ruling on the motion to dismiss. No trial date has been set. The viability of the case may be substantially affected by the U.S. Supreme Court’s decision in Haliburton v. Erica P. John Fund which the Supreme Court is expected to rule on later this summer.[27]

References

  1. ↑ Life Partners Inc, at www.lifepartnersinc.com
  2. ↑ Life Partners Holdings Inc., at www.LPHI.com
  3. ↑ "Life Partners Holdings, Inc. Announces Receipt of NASDAQ Letter Relating to Non-Compliance with Listing Rules". Life Partners Press Release. Business Wire.
  4. ↑ Life Partners, Inc. was incorporated on September 10, 1991 www.lifepartnersinc.com/about/certificateofincorporation.pdf making it the oldest life settlement company in the world. As with all life settlement companies and brokers of that time frame, its first transactions were viatical settlements in which the insured has a terminal illness and is not usually elderly. According to Life Partners’ records, it closed its first life settlement on a non-terminal, elderly insured on Sept. 30, 1997. Pennsylvania life settlement company Coventry First, LLC claims to have conducted the first life settlement transaction www.coventry.com/about-coventry-our-history.html , but the company was not formed until February 22, 2000 Look up “Coventry First” at: www.corporations.state.pa.us/corp/soskb/Corp.asp?1833218 .
  5. ↑ Rosenfeld, S. (2009).Working paper #0920. Life Settlements: Signposts to a Principal Asset Class. The Wharton School, University of Pennsylvania, p.3. Retrieved on March 21, 2014 from http://fic.wharton.upenn.edu/fic/papers/09/0920.pdf
  6. ↑ Life settlement economics and risks. Tools & Technics: Life Settlement Planning. Ch. 10, p. 86. Retrieved March 21, 2014 from http://insurancestudies.org/wp-content/uploads/2010/05/ISI_Chapter_LS_Economics_Risks.pdf
  7. ↑ Rosenfeld, S. (2009).Working paper #0920.Life Settlements: Signposts to a Principal Asset Class. The Wharton School, University of Pennsylvania, p.23. . Retrieved on March 21, 2014 from http://fic.wharton.upenn.edu/fic/papers/09/0920.pdf
  8. ↑ Januario, Afonso V. and Naik, Narayan Y., Empirical Investigation of Life Settlements: The Secondary Market for Life Insurance Policies (December 5, 2013). Available at SSRN: doi:10.2139/ssrn.2278299 p. 18.
  9. ↑ Januario, Afonso V. and Naik, Narayan Y., Empirical Investigation of Life Settlements: The Secondary Market for Life Insurance Policies (December 5, 2013). Available at SSRN: doi:10.2139/ssrn.2278299 p. 2.
  10. ↑ Januario, Afonso V. and Naik, Narayan Y., Empirical Investigation of Life Settlements: The Secondary Market for Life Insurance Policies (December 5, 2013). Available at SSRN: doi:10.2139/ssrn.2278299 p. 19.
  11. ↑ Wall Street Journal. States Ease Use of Life Insurance Policies for Elderly Care. Retrieved on March 21, 2014 from http://online.wsj.com/news/articles/SB10001424127887323836504578549580580890400
  12. ↑ Gottlieb, D. and Smetters, K. (2013). Lapse-Based Insurance. JEL No. D03, G22, G02. Retrieved on March 21, 2014 from http://www.princeton.edu/economics/seminar-present-week-schedule/lapse-based-insurance.pdf
  13. ↑ Januario, Afonso V. and Naik, Narayan Y., Empirical Investigation of Life Settlements: The Secondary Market for Life Insurance Policies (December 5, 2013). Available at SSRN: doi:10.2139/ssrn.2278299 p1, 10-11.
  14. ↑ “Planned Giving 101.” Retrieved on March 24, 2014 from www.plannedgiving.com/what-is-planned-giving
  15. ↑ Kerr, Tiffany. "Life Partners Files for Bankruptcy After $46 Million Judgement". Bloomberg. Retrieved 20 January 2015.
  16. ↑ Life Partners Holdings Inc, at www.LPHI.com
  17. ↑ Corporate financial information for Life Partners Holdings, Inc. may be viewed at http://ir.lphi.com/financials-statements.cfm
  18. ↑ Advance Trust and Life Services LTA, at www.lifeescrowservices.com
  19. ↑ Dimri, Neha. "US judge orders Life Partners, 2 execs to pay $46.9 mln in SEC case". Reuters. Retrieved Dec 3, 2014.
  20. ↑ "U.S. judge orders Life Partners, two executives to pay $46.9 million in SEC case". Reuters. 3 December 2014. Retrieved 21 September 2016.
  21. ↑ (1) The lawsuit is entitled Life Partners Holdings, Inc. et al. v. optionsXpress, Inc., Jonathan I. Feldman and Thomas E. Stern, Case No. 14CH6428, Circuit Court of Cook County, Illinois, County Department, Chancery Division. A complete copy of the complaint is available at: http://www.lphi.com/doc/Release_20140415.pdf
  22. ↑ (2) The SEC decision, In the Matter of optionsXpress, Inc., et al. is available on the SEC web site at http://www.sec.gov/alj/aljdec/2013/id490bpm.pdf.
  23. ↑ “SEC vs. Life Partners Holdings Inc., et al.” Retrieved on March 24, 2014 from http://www.reuters.com/article/2014/03/12/usa-sec-lifepartners-idUSL2N0M92D920140312
  24. ↑ A copy of the court documents dismissing the case and the general release by plaintiffs may be viewed at http://www.lphi.com/doc/Release_20131203.pdf .
  25. ↑ "Life Partners Holdings, Inc., Brian D. Pardo, R. Scott Peden and David M. Martin". Sec.gov. 2012-01-04. Retrieved 2013-12-05.
  26. ↑ "U.S. judge clears Life Partners of fraud charge in SEC case". Reuters. March 12, 2014.
  27. ↑ Kalinowski, Bryan Cave LLP-Jeffrey J.; Schoemehl, John J.; Ziesman, Jeffrey A.; Kuhlman, Richard H.; Sipes, Elizabeth Kemery. "Will the Supreme Court curtail securities fraud lawsuits this term? - Lexology". lexology.com. Retrieved 21 September 2016.
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