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 30 of 329955, at *9 (N.D. Tex. Mar. 13,2006).The Section 17(a) claim based on LPHI's February 2007 public filings must be dismissedbecause there were no LPHI filings in that month that referenced LPHI's revenue recognitionpolicies. 83 Further, for each of the reasons set forth in Sections B(l) and C(l) herein, Defendantscannot be liable under Section 17(a)(1) for the January 2007 Form 10-QSB because Plaintiff hasfailed to sufficiently allege scienter. Finally, Defendants cannot be liable under Section 17(a)(2)or (3) because Plaintiff cannot premise scheme liability on a misrepresentation claim. See SECv. Kelly, 2011 U.S. Dist. LEXIS 108805, at *8_15. 84E. Plaintiff Failed to Adequately Plead Section 13 Claims and Claims for Violations ofVarious Exchange Act Rules.The Complaint's Third through Sixth Claims allege various violations of the ExchangeAct for the filing of false statements, the failure to maintain books and records, the failure tomaintain and implement internal accounting controls, and the making of false statements to anaccountant. 85However, many of the same deficiencies previously discussed, similarly, requiredismissal of these claims.For example, Plaintiffs reliance on the allegation that Defendants failed to disclose a"material risk" to LPHI's business or a material trend impacting LPHI's revenues in support ofsuch claims must be dismissed, as Plaintiff has not plead a material misstatement with respectthereto. 86Likewise, Plaintiffs aiding and abetting claims against Defendants Pardo, Peden and83 See Form 4 Statement of Changes in Beneficial Ownership of Securities filed on February 14,2007, and Form 8-K filed on February 20,2007, true and correct copies of which are included in the Appendix as Exhibits Land M.84 Additionally, Peden cannot be liable for the January 2007 Form 10-QSB because he did not sign same and, thus,did not "make" the statement. See Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2302-2305 (2011); SEC v. Kelly, 2011 U.S. Dist. LEXIS 108805, at *8-15.85 CompI., pp. 50-53.86 See Section A(2) herein. Plaintiff expressly relies on these allegations to support the Third Claim for Relief.CompI., ~162. It is unclear whether Plaintiff is relying on these allegations to support their remaining claims forrelief. In that regard, the allegations fail to put Defendants on notice of the claims against them in violation of Rule8(a) and 12(b)(6).DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 24
Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 31 of 32Martin under the Third, Fourth and Fifth Claims for Relief must be dismissed because Plaintiffhas failed to allege that any of the Defendants knew of the problems with LPHI's revenuerecognition or impairment calculations. See SEC v. Cohen, 2007 U.S. Dist. LEXIS 28934, at*53-59 (dismissing claims under Sections 13(a), 13 (b)(2), 13(b)(5) and related rules based upondefendant CFO's lack of knowledge of the accounting issues and lack of evidence that defendantdirected someone to falsify company's books and records.). Such is especially true with respectto Defendants Pardo and Peden, neither of whom are alleged to be responsible for the accountingbooks and records or the internal controls related to accounting. See, e.g., SEC v. Shanahan, No.4:07CV270JCH, 2010 U.S. Dist. LEXIS 2101, at * 15-18 (B.D. Mo. Jan. 12, 2010)(rejectingSection 13(b )(2)(A) claim "in absence of evidence that defendant was responsible for thecorporation's books and records or for maintaining adequate controls").Plaintiff s Sixth Claim is based on a conclusory allegation that the individual Defendantsmade false and misleading statements "to an accountant.,,87 However, Plaintiff has failed toadequately plead that any of Pardo, Peden or Martin, when they signed managementrepresentation letters to the auditors,88 knew of the existence of any material errors in LPHI'sfinancial statements. Nor are there sufficient allegations that, at the time they signed thoseletters, the individual Defendants knew that the system of internal controls was inadequate. Suchlack of knowledge (or pleading of same) is fatal to the Sixth Claim for Relief. See SEC v.Cohen, 2007 U.S. Dist. LEXIS 28934, at *59-60.87 Compl., ~178.88 Defendants assume that Plaintiff is relying on the management representation letters to support this claim.However, Plaintiff fails to specify what statements they are relying on in support of their claim, in violation of Rules8(a) and 12(b)(6).DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 25
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Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 1 of 32

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