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

spreadsheet of the 300 “most recent” maturities. Notably, the spreadsheet included both viaticaland life settlement policies dating back to fiscal year 2000, but it excluded 1,230 policies forwhich insureds had outlived Cassidy LEs. Peden and Martin knew that consideration of these1,230 policies by the auditor would have been essential to an accurate assessment of Cassidy’strack record, and they intentionally excluded these policies to mislead the auditor.14. Between February 2007 and January 2009, Pardo and Peden sold approximately$11.5 million and $300,000, respectively, of Life Partners common stock based on material, nonpublicinformation that the Company’s stock price was dependant on its practice ofsystematically using materially short LEs to generate revenues.15. During the same time period that the Defendants were misleading shareholdersabout risks to Life Partners’ business and investor returns, they also engaged in an accountingfraud. From at least fiscal year 2007 through the third quarter of fiscal year 2011, Life Partnersmaterially misstated its net income by prematurely recognizing revenue from life settlementtransactions that had not yet been completed. Additionally, Pardo, Peden and Martin knew orwere reckless in not knowing that it was Life Partners’ practice to conceal improper revenuerecognition practices from it the Company’s auditor by backdating transactional documents forthe life settlements the Company brokered.16. From at least fiscal year 2009, Defendants also misstated net income by failing toappropriately impair life settlement policies owned by Life Partners. Despite their awarenessthat the Company’s LEs were materially short, Defendants continued to use those LEs to valuepolicies that the Company held on its own books, thereby artificially inflating the value of thepolicies in Life Partners’ financial statements.SEC v. Life Partners Holding, Inc., et al. Page 6Complaint