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

Company made it a practice to keep the books and records open for purposes of recordingrevenues since at least fiscal year 2004. The Cutoff Memo set a uniform period of time duringwhich the Company kept its books and records open for revenue recognition purposes at 15business days. The Cutoff Memo rationalized the practice on the ground that it “allowed timefor transactions conducted in the latter part of the quarter to clear and to receive bills for goodsand services rendered in the latter part of the quarter.”110. Under the 15-business-day Policy, Defendants recognized revenue from a lifesettlement transaction, whether that revenue was recognizable under GAAP or not, in the quarterimmediately prior to the quarter in which the events on which the Company based its decision torecognize revenue had occurred.111. For example, if an investor committed in a Policy Funding Agreement to purchasean interest in a policy after quarter end, but prior to 15 business days into the current quarter,Life Partners recognized the pro rata revenues and costs associated with the transaction in theprevious quarter. This practice is contrary to Pardo and Peden’s stated rationale for the policy,which suggested that the policy was intended only to allow the paperwork for a transactionoccurring in the previous quarter to be returned to Life Partners before being recorded in theprevious quarter.112. Through its adherence to the 15-business-day policy, Life Partners recordedrevenue in a particular quarter based on events that occurred in a future quarter, which iscontrary to GAAP.113. After the Commission’s staff began its investigation of the claims underlying thislawsuit, Defendants informed the Commission’s staff that the Company had decided todiscontinue its practice of recognizing revenue under the 15-business-day Policy.SEC v. Life Partners Holding, Inc., et al. Page 36Complaint