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 28 of 32Plaintiff also alleges that E& Y recommended - in May 2010 - that LPHI conduct aquarterly analysis of the accuracy of initial LEs to determine if adjustments needed to be made tothe underwriting process. 77 Of course, this allegation undermines Plaintiff s claim that any of theDefendants knew that Dr. Cassidy's LEs were significantly underestimated and, further,undermines Plaintiffs claim that Defendants knew LPHI's impairment analysis was incorrect.C. Plaintiff Failed to Adequately Plead an Insider Trading Claim against Peden.In order to state a claim of insider trading under Section 1 O(b), Plaintiff must plead thatPeden sold LPHI stock while in possession of material, non-public information, and withscienter. See Dirks v. SEC, 463 U.S. 646, 653-54 (1983). However, "[c]ourts stress that the SECcan not base insider trading actions on strained inferences and speculation." SEC v. Truong, 98F. Supp. 2d 1086, 1098 (N.D. Cal. 2000).Plaintiffs insider trading claim against Peden is based upon a single sale of a fraction ofPeden's holdings of LPHI shares that took place in June 2007. 78 Plaintiff asserts that Peden hadthe following non-public information in his possession when he made his single trade: "[I]t wasLife Partners' practice to systematically use materially short life expectancy estimates to brokerlife settlements, and that this practice had the effects of artificially inflating the Company'srevenues and profit margins, and creating investor demand for the life settlements that LifePartners brokered and that would not exist but for the Company's practice of doing SO.,,79Asdiscussed in Sections A(2)(b),(c), and (d), the Complaint is devoid of sufficient allegations thatwould establish Peden's possession of the alleged material, non-pUblic information. Indeed, thefact that, according to Plaintiff, "Peden did not follow the recommendation to analyze Cassidy'sLEs" allegedly made by an undisclosed "firm" in 2006, only further supports the inference that77 CompI., ~128.78 CompI., ~139.79 CompI., ~154.DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 22
Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 29 of 32Peden was not in possession of material, non-pUblic infonnation. 8oFurther, any attempt byPlaintiff to impute knowledge of the "non-public" infonnation concerning LEs to Peden becausethat infonnation was accessible to him due to "the Company's internal policy tracking system,,81is equally unavailing. See, e.g., SEC v. Horn, No. 10-CV-955, 2010 U.S. Dist. LEXIS 135000,at *17 (N.D. Ill. Dec. 16, 2010) ("[P]roof of access to nonpublic infonnation is not proof ofpossession of that infonnation.").Nor has Plaintiff alleged circumstantial evidence againstPeden, such as selling LPHI shares in suspicious amounts or at suspicious times. The absence ofsuch allegations lies in stark contrast to the more typical insider trading claims. See, e.g., SEC v.Steffes, No. 10-CV-6266, 2011 U.S. Dist. LEXIS 85496, at *44-45 (N.D. Ill. Aug. 3, 2011)(unusual trading in amounts and timing supported an inference of scienter); SEC v. Adler, 137F.3d 1325, 1340 (11th Cir. 1998) (same).Accordingly, because the Complaint fails to adequately allege scienter, Plaintiffs Section1 O(b) claims of insider trading against Peden must be dismissed.D. Plaintiff Failed to Adequately Plead a Section 17(a) Claim.Plaintiffs Section 17(a) claim is premised upon January and February 2007 filings byLPHI wherein Plaintiff alleges LPHI, Pardo and Peden made misrepresentations or omissionsregarding revenue recognition. 82To establish a violation of Section 17(a)(1), Plaintiff mustallege the defendants (1) made material misrepresentations or materially misleading omissions,(2) in the offer or sale of securities, (3) with scienter. Aaron v. SEC, 446 U.S. 680,697 (1980).The same elements apply under Sections 17(a)(2) and 17(a)(3), except that no scienter isrequired. Id. Plaintiffs scienter allegations must be pled, as to each defendant, with requisiteparticularity under Rule 9(b). See SEC v. Gann, No. 3:05-CV-0063-L, 2006 U.S. Dist. LEXIS80 CompI., ~53.81 CompI., ~54.82 CompI. ~147.DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 23
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Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 1 of 32

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