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

policy allowed it to recognize revenue before the purchaser becomes contractually obligated tomake a payment. That obligation can arise only after closing for a particular transaction.93. Specifically, investors are not obligated to make a payment from escrow topurchase a fractional interest in a particular policy until the policy owner is obligated to sell thepolicy. Under the terms of the Seller Agreement, the policy owner is not obligated to sell thepolicy until closing. Prior to that date, there is nothing for the investor to purchase.Consequently, investors are not obligated (contractually or otherwise) to purchase the policyuntil closing. Because the Company’s revenue recognition policy allowed it to recognizerevenue prior to closing – before investors become contractually obligated to make payments –the disclosures in the Company’s Forms 10-Q and 10-QSB for fiscal years 2007 and 2008 werefalse.94. The Company’s Forms 10-Q for fiscal year 2011 state a fourth false description ofits revenue recognition policy. The Forms 10-Q state that the Company recognizes revenue fromlife settlement transactions “upon the receipt of executed contracts and assignment document,and when the sellers have obligated themselves to transfer title of policies.” This description isfalse because the seller is not obligated to sell a policy and, therefore, transfer title, until theclosing, but it was the Company’s practice to recognize revenue before closing.95. On November 22, 2011, in the Restatement, the Company announced that it waschanging the date of revenue recognition from the date that purchasers commit to buy policies tothe date that policy closings are funded (i.e., the Closing Date).SEC v. Life Partners Holding, Inc., et al. Page 31Complaint