Life Partners Holdings, Inc., Brian D. Pardo, R. Scott Peden, and ...

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oker life settlement interests were systematically and materially underestimated. As ofFebruary 2006, tracking data revealed that, of the policies brokered by Life Partners 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 Life Partners and itsmanagement, including Pardo and Peden, about the unreliability of Cassidy’s LEs. TheColorado Securities Commission filed an action against Life Partners, Pardo, Peden, and 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 Life Partners.” Life Partners settled the suit by agreeing, withrespect to investments in 524 policies, to refund the investors’ money and 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 Life Expectancy Estimateson Life Partners’ Business56. Notwithstanding the significance of LEs to Life Partners’ profit margins, revenue,and investor demand for the Company’s products, Life Partners 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 and 10-KSB for fiscal years 2006 through 2011, the Companyincluded the following disclosures:SEC v. Life Partners Holding, Inc., et al. Page 18Complaint
Fiscal Year EndDisclosureForms 10-K2006 If we underestimate the average life expectancies, our purchasers will notrealize the returns they seek, demand will fall, and 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 andlife settlors, and those losses could have a material adverse effect on ourbusiness, financial condition, and results of operations. (Emphasis added.)2007-2008 If we underestimate the average life expectancies and price ourtransactions too high, our purchasers will not realize the returns theyseek, demand may fall, and 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, andthose losses could have a material adverse effect on our business,financial condition, and results of operations. (Emphasis added.)2009-2010 If we underestimate the average life expectancies and price ourtransactions too high, our purchasers will realize smaller returns,demand may fall, and 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, and those lossescould have a material adverse effect on our business, financialcondition, and results of operations. (Emphasis added.)2011 If we underestimate the average life expectancies and price ourtransactions too high, our purchasers will realize smaller returns,demand may fall, and purchasers may invest their funds elsewhere. . . .To support our pricing systems, we use life expectancy estimates froman outside practicing physician and 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, andthose losses could have a material adverse effect on our business,financial condition, and results of operations. (Emphasis added.)SEC v. Life Partners Holding, Inc., et al. Page 19Complaint
Page 1: UNITED STATES DISTRICT COURT FOR TH
Page 6 and 7: spreadsheet of the 300 “most rece
Page 9 and 10: 24. R. Scott Peden, age 47, has ser
Page 11: 32. Pardo hired Cassidy without con
Page 14 and 15: insurance. In fact, contrary to the
Page 16 and 17: E. Defendants Knew that Cassidy’s
Page 20 and 21: 57. Contrary to Life Partners’ mi
Page 22 and 23: THE ACCOUNTING FRAUD 64. In fiscal
Page 24 and 25: agreement to sell the policy for an
Page 26 and 27: 76. Under GAAP, revenue can be reco
Page 28 and 29: therefore misleading. Based on the
Page 30 and 31: 88. Pardo, Peden, and Martin were a
Page 32 and 33: E. Life Partners Backdated Certain
Page 34 and 35: though all three of its internal cr
Page 36 and 37: Company made it a practice to keep
Page 38 and 39: 118. In a letter to the Company dat
Page 40 and 41: that affects our assumptions about
Page 42 and 43: ecommended that “[a] formal analy
Page 44 and 45: 136. Life Partners’ 2011 Form 10-
Page 46 and 47: 11/3/2008 $36.67 2,866 $105,096.221
Page 48 and 49: through 145.SECOND CLAIM FOR RELIEF
Page 50 and 51: through 145.THIRD CLAIM FOR RELIEFV
Page 52 and 53: 171. By reason of the foregoing, Pa
Page 54 and 55: through 145.SEVENTH CLAIM FOR RELIE
Page 56 and 57: e) ordering Defendants to disgorge

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