oker life settlement interests were systematically <strong>and</strong> materially underestimated. As ofFebruary 2006, tracking data revealed that, of the policies brokered by <strong>Life</strong> <strong>Partners</strong> for whichthe accuracy of Cassidy’s LEs is measurable (“measureable policies”), insureds underlying 88%of those policies had outlived their LEs. By February 2009, the tracking data showed thatinsureds under 90% of measurable policies had outlived their LEs.55. In 2007, the Colorado Securities Commission confronted <strong>Life</strong> <strong>Partners</strong> <strong>and</strong> itsmanagement, including <strong>Pardo</strong> <strong>and</strong> <strong>Peden</strong>, about the unreliability of Cassidy’s LEs. TheColorado Securities Commission filed an action against <strong>Life</strong> <strong>Partners</strong>, <strong>Pardo</strong>, <strong>Peden</strong>, <strong>and</strong> othersalleging, among other things, that the Company’s failed to disclose material facts to investors inits life settlement transactions, including “the high frequency rate in which the viators outlivedlife expectancies predicted by <strong>Life</strong> <strong>Partners</strong>.” <strong>Life</strong> <strong>Partners</strong> settled the suit by agreeing, withrespect to investments in 524 policies, to refund the investors’ money <strong>and</strong> take back their policyinterests. Company paid $10.1 million to do so, along with statutory interest of $2.7 million.F. Defendants Misled Shareholders About the Impact of Short <strong>Life</strong> Expectancy Estimateson <strong>Life</strong> <strong>Partners</strong>’ Business56. Notwithst<strong>and</strong>ing the significance of LEs to <strong>Life</strong> <strong>Partners</strong>’ profit margins, revenue,<strong>and</strong> investor dem<strong>and</strong> for the Company’s products, <strong>Life</strong> <strong>Partners</strong> misrepresented, as a contingentrisk, the adverse impact of underestimated LEs on the Company’s business. In the Risk Factorssection of each of its Forms 10-K <strong>and</strong> 10-KSB for fiscal years 2006 through 2011, the Companyincluded the following disclosures:SEC v. <strong>Life</strong> <strong>Partners</strong> Holding, <strong>Inc</strong>., et al. Page 18Complaint
Fiscal Year EndDisclosureForms 10-K2006 If we underestimate the average life expectancies, our purchasers will notrealize the returns they seek, dem<strong>and</strong> will fall, <strong>and</strong> purchasers will investtheir funds elsewhere . . . . We cannot assure you that, despite ourexperience in settlement pricing, we will not err by underestimating oroverestimating average life expectancies or miscalculating reserve amountsfor future premiums. If we do so, we could lose purchasers or viators <strong>and</strong>life settlors, <strong>and</strong> those losses could have a material adverse effect on ourbusiness, financial condition, <strong>and</strong> results of operations. (Emphasis added.)2007-2008 If we underestimate the average life expectancies <strong>and</strong> price ourtransactions too high, our purchasers will not realize the returns theyseek, dem<strong>and</strong> may fall, <strong>and</strong> purchasers may invest their fundselsewhere . . . .We cannot assure you that, despite our experience insettlement pricing, we will not err by underestimating or overestimatingaverage life expectancies or miscalculating reserve amounts for futurepremiums. If we do so, we could lose purchasers or policy sellers, <strong>and</strong>those losses could have a material adverse effect on our business,financial condition, <strong>and</strong> results of operations. (Emphasis added.)2009-2010 If we underestimate the average life expectancies <strong>and</strong> price ourtransactions too high, our purchasers will realize smaller returns,dem<strong>and</strong> may fall, <strong>and</strong> purchasers may invest their funds elsewhere. . . .We cannot assure you that, despite our experience in settlement pricing,we will not err by underestimating or overestimating average lifeexpectancies or miscalculating reserve amounts for future premiums. Ifwe do so, we could lose purchasers or policy sellers, <strong>and</strong> those lossescould have a material adverse effect on our business, financialcondition, <strong>and</strong> results of operations. (Emphasis added.)2011 If we underestimate the average life expectancies <strong>and</strong> price ourtransactions too high, our purchasers will realize smaller returns,dem<strong>and</strong> may fall, <strong>and</strong> purchasers may invest their funds elsewhere. . . .To support our pricing systems, we use life expectancy estimates froman outside practicing physician <strong>and</strong> a leading industry provider. Wecannot assure purchasers that, despite our experience in settlementpricing, we will not err by underestimating or overestimating averagelife expectancies or miscalculating reserve amounts for futurepremiums. If we do so, we could lose purchasers or policy sellers, <strong>and</strong>those losses could have a material adverse effect on our business,financial condition, <strong>and</strong> results of operations. (Emphasis added.)SEC v. <strong>Life</strong> <strong>Partners</strong> Holding, <strong>Inc</strong>., et al. Page 19Complaint