Waco-based Life Partners wins legal victory in investment suit

Brian Pardo, founder and CEO of Life Partners Holdings Inc., attacked Texas Attorney General Greg Abbott's office for using the lawsuit to "make baseless claims" about the company.

An investor in Life Partners Holdings securities claims in a federal lawsuit that the Waco-based company misled its customers about its financial well-being and deceived them into buying life insurance policies at artificially inflated prices.

Gerald A. Taylor, of Clark County, Nev., is seeking class-action status for his lawsuit, filed last week in Waco’s U.S. District Court.

The lawsuit cites Life Partners Holdings Inc.; Brian Pardo, its CEO and board chairman; Nina Piper, its former chief financial officer; David M. Martin, its CFO; and Scott Peden, company president and legal counsel.

Taylor’s lawsuit was filed less than two weeks after Life Partners confirmed the Securities and Exchange Commission is investigating the way the company determines life expectancies of people who sell their life insurance policies.

Pardo, Martin and Peden did not return phone calls to Life Partners’ offices Tuesday.

Life Partners spokeswoman Andrea Atwell said company officials are aware that a “group of lawyers is trying to get a class-action lawsuit together.”

But she declined comment on the lawsuit, saying the company had not been served and it is unfamiliar with the allegations.

Viatical settlements

Life Partners, 204 Woodhew Drive, deals in the secondary market for life insurance known as life settlements or viatical settlements. It buys policies from old or terminally ill people and markets them to investors.

Investors make payments on the policies and receive the insurance proceeds. If a person lives longer than expected, investors pay more in premiums and see delays in getting a return on their investments.

The suit was filed on Taylor’s behalf by Waco attorney Bill Johnston; attorneys from the Nix, Patterson & Roach firm, of Irving; attorneys with Barroway, Topaz, Kessler, Meltzer and Check, of Radnor, Penn.; and Hamilton Lindley of the Goldfarb, Branham firm, of Dallas.

“We think it is a strong case and we are talking to people who have lost money,” said former Waco attorney Derek Gilliland of the Nix law firm.

The lawsuit references a Dec. 21, 2010, story in The Wall Street Journal that questions the company’s life-expectancy estimates and business practices.

The Journal investigated how Life Partners sells life insurance policies to investors, saying that Life Partners “has made large fees from its life insurance transactions while often significantly underestimating the life expectancies of people whose policies its customers invest in.”

The suit also mentions a Jan. 20, 2010, story in the Journal about the SEC investigation.

The story said that “as part of its probe, the SEC’s enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals.”

The Journal said data Life Partners filed with the Texas Department of Insurance showed that, for policies sold from 2002-05, insured people outlived Life Partners’ projections about 90 percent of the time.

Taylor claims in his lawsuit that Life Partners “failed to disclose material adverse facts about the company’s financial well-being, business relationships and prospects.”

Life Partners did not disclose “that it routinely had used unrealistic life-expectancy data that produced inaccurately short life-expectancy reports, which were subsequently used to sell life settlement policies to investors.”

Historical rate

The suit also contends Life Partners “purposely concealed the historical rate in which individuals insured by life settlement policies sold by Life Partners had lived past the life-expectancy rates previously provided to investors, such that the company’s investors were unable to assess the accuracy or reliability of such data.”

By underestimating the life-expectancy data to investors, Life Partners was able to charge “substantially larger fees” to broker the policies, according to the lawsuit.

The suit also claims the company’s financial statements “were false and misleading.”

The lawsuit seeks class-action status, which would mean, pending approval from U.S. District Judge Walter S. Smith Jr., that other investors “similarly situated” could join as plaintiffs.

Life Partners said it has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since it was founded in 1991. The company is publicly traded, but it won a federal appeals court ruling 15 years ago that said its life settlements were not subject to federal securities laws.

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