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

G. Restatement and Net Effect132. As described above, on November 22, 2011, Life Partners announced, in Form10-K for fiscal year 2011, a Restatement that addresses, among other items, errors related torevenue recognition and impairment expense for investments in Company-owned policies.133. The Company’s Form 10-K also reported that it had “improved” the method bywhich it calculated impairment on investments in policies by, among other things, increasing“the amount of actuarial data to improve our methodology for estimating life expectancy.” TheCompany reported that, rather than relying solely on Cassidy, the Company had obtained asecond LE for each insured from an industry provider, typically 21st Services, LLC. Notsurprisingly, the addition of a second, well-known LE provider resulted in increased LEs forinsureds underlying life settlements brokered by the Company, and increased impairmentexpense in prior periods.134. The Restatement, as it relates to impairment of investments in policies, however,does not exclusively result from a refinement of the Company’s estimation process, which, underGAAP, should be reported prospectively. To the contrary, the Restatement, as it relates toimpairment of investments in policies, is due to misuse or oversight of facts that existed at thetime the previously-issued financial statements were prepared. In particular, Defendants’ misuseor oversight of facts indicating that Cassidy’s LEs were materially short is what caused theCompany to understate impairment of investments in policies.135. According to the Company’s Form 10-K for fiscal year 2011, the Company alsocorrected errors related to deferred policy monitoring costs, accrued liabilities, certain otheritems, and the related tax impact.SEC v. Life Partners Holding, Inc., et al. Page 43Complaint