Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 1 of 32

More documents

Recommendations

Info

Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 12 of 32finding of scienter may be based upon "severe recklessness," "[i]t is insufficient to show that adefendant should have known that a material statement or omission was false or misleading."SEC v. Shanahan, 646 F.3d 536, 544 (8th Cir. 2011). "Alleged facts are sufficient to support aninference of scienter if they either (1) show a defendant's motive to commit securities fraud, or(2) identify circumstances that indicate conscious behavior on the part of the defendant."Lovelace, 78 F.3d at 1018. In the absence of sufficient allegations of motive, "the strength of thecircumstantial allegations [indicating conscious behavior on the part of the defendant] must becorrespondingly greater." Tuchman, 14 F.3d at 1068. Further, when assessing allegations ofscienter relating to a corporate defendant, courts must address the allegations of scienter as toeach individual officer defendant to determine whether the complaint satisfies the heightenedpleading requirements of scienter. Southland Sec. Corp. v. Inspire Ins. Solutions Inc., 365 F.3d353, 366 (5th Cir. 2004).Plaintiff s "disclosure" fraud claims are premised upon the unsupported allegation that"Life Partners systematically used materially underestimated LEs"ll and that Defendantsmisrepresented "that the underestimation ofLEs was a contingent risk." I 2 Yet, Plaintiff failed toadequately plead motive, knowledge, or a material misstatement or omission, and thus, the"disclosure" claims must be dismissed.1. Plaintiff Failed to Adequately Plead Motive.Plaintiff does not plead motive with respect to Defendant Martin.13In fact, theComplaint's only allegations of motive are that Defendants Pardo and Peden sold LPHI stock. 14However, allegations of insider trading by corporate defendants are only probative of scienter if11 "LEs" is a shorthand term for life expectancy estimates.12 Compl., ~~1, 10.13 See generally, Compl.14 Compl., ~~14, 138-43.DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 6
Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 13 of 32the trading occurs in suspicious amounts or at suspicious times. Abrams v. Baker Hughes, Inc.,292 F.3d 424, 435 (5th Cir. 2002). As to Peden, Plaintiffrelies on a June 18, 2007 sale of LPHIstock, but alleges no facts establishing that the amount of the trade was suspicious. ISIn fact,public filings establish that, after his sale, Peden retained 44,097 (pre-split) shares of LPHI stock(over 81% of his shares).16 Moreover, the timing of the sale was not suspicious, given that thesale occurred more than fifteen (15) months after Peden purportedly became aware that LifePartners systematically underestimated LEs.17Finally, because the price of LPHI stockincreased substantially after his stock sale, Peden clearly did not sell to "maximize personalprofit" or to prevent imminent losses in the value of his shares. 18Similarly, Plaintiff cites Pardo Family Trust stock sales, without any allegations that suchsales were in suspicious amounts or at suspicious times. 19Rather, according to the Complaint,the first sale occurred one (1) year after Pardo purportedly knew of the underestimation of LEs.2oIn addition, the Complaint also alleges that, as of June 2010, Pardo directly or indirectly ownedmore than 50% of LPHl,21 Had Pardo been in possession of material non-public infonnation andintended to "maximize his personal profit," one would think he would have caused the PardoFamily Trust to dispose of significant shares long before news of the SEC investigation hit themarket. Nor are there allegations in the Complaint that the sales were unusual or out of line withhistorical trades for Pardo or the Pardo Family Trust. See Abrams, 292 F.3d at 435 (allegationsof insider trading not probative of scienter because no allegations that the sales were "out of linewith prior trading practices or at times calculated to maximize personal profit"); see also15 CompI., ~~138-43.16 See Form 4 Statement of Changes in Beneficial Ownership of Securities filed on June 25, 2007, a true and correctcopy of which is included in the Appendix as Exhibit A.17 See CompI., ~138.18 See http://finance.yahoo.com/gihp?s=LPHI+Historical+Prices.19 See CompI., ~139.20 See CompI., ~139.21 CompI., ~23.DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 7
Page 1 and 2: Case 1:12-cv-00033-JRN Document 12
Page 11: Case 1:12-cv-00033-JRN Document 12

Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 1 of 32

Create successful ePaper yourself

Delete template?

Save as template?