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

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Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 14 of 32Nathenson v. Zonagen, Inc., 267 F.3d 400,420-21 (5th Cir. 2001).Finally, the absence of allegations that Defendant Martin engaged in improper tradingactivity further establishes that Pardo's and Peden's sales do not support an inference of scienter.See Abrams, 292 F.3d at 435 (unsual sales by one insider "do not give rise to a strong inferenceof scienter" when other defendants did not sell shares).Accordingly, Plaintiff's allegationsconcerning Pardo's and Peden's stock sales are insufficient to support an inference of scienterbased upon motive, and therefore, Plaintiff's allegations of conscious behavior are subject to amore stringent standard for establishing scienter. See Tuchman, 14 F.3d at 1069.2. Plaintiff Failed to Adequately Plead Conscious Behavior and Failed toAdequately Plead Material Misstatements or Omissions.a. Neither Dr. Cassidy's Methodology nor Peden's Alleged IncorrectDescriptions thereof Impose Liability on Defendants.Plaintiff alleges that Dr. Cassidy's practices in projecting LEs for LPI's use in facilitatinglife settlements deviate from the purported "standard practices" in the life settlement industrybecause he is a medical doctor and not an actuary, and because he uses mortality data generatedby the U.S. Govemment. 22 However, because this is not a suit against LPI, its use of Dr. Cassidyand, thus, his methodology, are not at issue, nor could they be since the life settlementtransactions are not securities under the federal securities laws. 23Knowing this, Plaintiff attempts to bootstrap Dr. Cassidy's methodology into a claim forsecurities fraud when it alleges that Peden, in October and November 2008, misrepresented "toan investor" and to a non-investor, respectively, that Dr. Cassidy used a different actuarial table22 See Compl., ~~5, 32, 35. Defendants dispute that a "standard practice" actually exists in the industry and, to theextent it exists, the timing of when such "standard practice" emerged. See, e.g., Paul Siegert, Evolution of LifeExpectancies in the Life Insurance Secondary Market ... Current Trends and New Developments, Life InsuranceSettlement Series Edition No. VI (Aug. 4, 2010)("[U]nderwriting guidelines vary substantially among LEunderwriters, and most of the life settlement underwriters have developed unique mortality curves based on theirown experience of mortality patterns.").23 See SEC v. Life Partners, 87 F.3d at 549; see also 15 U.S.C. §78j(b) (requiring misstatements or omission "inconnection with" the purchase or sale of a security).DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 8
Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 15 of 32than what he was actually using. 24 The foregoing allegations fail to set forth the time and placefor the statements, the identities of the persons to whom the statements were made, and whatPeden "obtained thereby." Therefore, the allegations are insufficient under Rule 9(b). Gonzalez,2011 U.S. App. LEXIS 25237, at *8-9.Moreover, for Peden's alleged statements to be actionable, such statements must havebeen made "in connection with" the purchase or sale of a security.25 Thus, Peden's November2008 statement to a non-investor cannot give rise to liability or establish a strong inference ofscienter. Nor does Peden's October 2008 statement to an alleged "investor" give rise to suchliability or establish scienter. More specifically, the Complaint refers to purchasers of viaticaland life settlements as "investors," as distinguished from its references to "shareholders" ofLPHI,26 thereby confirming that Peden's October 2008 statement was not made to a purchaser ofLPHI securities and, thus, was not made "in connection with" the purchase or sale of a security.27In short, both Dr. Cassidy's methodology and Peden's alleged incorrect statementsrelated thereto are red herrings, providing no basis for liability or a finding of scienter againstany Defendant.b. Defendants did not Know that Dr. Cassidy's LEs were Materially Short.Plaintiffs repeated allegations that Defendants knew Dr. Cassidy's LEs were materiallyshort not only defy logic, but also are refuted by the very documents on which Plaintiffpurportedly relies in support of its claim.24 Compl., ~~43-44.25 15 U.S.C. §78j(b).26 Compare Compl., ~~2, 3, 4, 5, 9, 11 with ~~1, 14.27 Moreover, even a purportedly inaccurate statement by Peden to a "shareholder" would not alter the total mix ofinformation available to LPHI's shareholders, thus precluding any liability with respect to that statement. See, e.g.,SEC v. Morgan Keegan & Co., No. 1:09-cv-1965-WSD, 2011 U.S. Dist. LEXIS 71481, at *31-37 (N.D. Ga. June28, 2011)(rejecting SEC's argument that statements made to four investors were sufficient to impose liability,holding that "[t]he SEC must do more than show a few isolated instances of alleged ... misconduct to obtain therelief it seeks.").DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 9
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