Federal securities regulators filed suit Tuesday against a Texas-based provider of so-called "life settlements," accusing it and three top executives of defrauding shareholders by overvaluing the life insurance policies it buys from its customers.
In a statement, the Securities and Exchange Commission said Life Partners Holdings Inc. and its top management lowballed life-expectancy estimates used to price the settlements they pay customers.
With life settlements, policyholders sell their life insurance policies in return for a lump-sum payment. Investors buy the right to collect the policy's death benefits, but must continue to pay premiums until the original policyholder dies.
The lawsuit the SEC filed in federal court in Waco, Texas, also names as defendants the company's founder, chairman and chief executive, Brian Pardo, its president and general counsel, R. Scott Peden, and Chief Financial Officer David Martin.
In its civil complaint, the SEC alleges that Life Partners and its executives engaged in deceptive disclosures and improper accounting to overvalue its assets and exaggerate its revenue stream from brokering life settlements. The SEC also accused Pardo and Peden of insider trading.
"Life Partners duped its shareholders by employing an unqualified medical doctor to assign baseless life-expectancy estimates to the underlying insurance policies," said Robert Khuzami, head of the SEC's enforcement division. "This deception misled shareholders into thinking that the company's revenue model was sustainable when in fact it was illusory."
Waco-based Life Partners said the lawsuit is "without merit," and it promised a vigorous defense.
"It is very disappointing that the SEC has chosen to pursue litigation over issues that we believe have no merit and financial presentation issues that we do not believe are material," Pardo said in a company statement. "We have always done our best to deliver value to our shareholders and to run an honest and transparent company."