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

“carrying amount” for Life Partners’ investments in policies is equal to the amount reported onits balance sheet, which represents historical cost less any previously recorded amounts ofimpairment.121. Under ASC 360-10, an impairment loss shall be recognized if the carryingamount is not recoverable and exceeds its fair value. The carrying amount is not recoverable if itexceeds the sum of the undiscounted cash flows expected to result from the use and eventualdisposition of the asset. ASC 360-10 states that an impairment loss shall be measured as theamount by which the carrying amount exceeds fair value. Fair value is the price that would bereceived to sell an asset in an orderly liquidation. For long-lived assets having uncertainties inboth in timing and amounts, such as life settlements, ASC 360-10 states that “an expectedpresent value technique will often be the appropriate technique with which to estimate fairvalue.”122. Since fiscal year 2007 through at least fiscal year 2009, Life Partners has reportedits investments in policies at the lesser of cost – i.e., the dollar amount it spent to purchase thepolicies – or 75% of the face value of the policy. Life Partners recorded the difference betweencost and 75% of the face value of the policies as settlement expense. Life Partners’ practice ofrecording the difference as settlement expense is not consistent with either evaluation ofrecoverability or determination of fair value under ASC 360-10. The practice of recordingpolicy value at the lesser of cost or 75% of face value also evidences Defendants’ awareness thatLife Partners’ investments in policies acquired to settle disputes may have been impaired whenacquired.123. Life Partners disclosed in its filings with the Commission that it evaluated thecarrying value of its investments in policies on a regular basis “using new or updated informationSEC v. Life Partners Holding, Inc., et al. Page 39Complaint