The Securities and Exchange Commission (SEC) has charged Texas-based financial services firm, Life Partners and its three senior executives over disclosure and accounting frauds involving life settlements.
According to SEC, the firm’s chairman and CEO Brian Pardo, president and general counsel Scott Peden, and CFO David Martin failed to disclose risk to Life Partners’ business and misled shareholders by underestimating the life expectancy estimates it used to price transactions.
The executives, including the firm, overvalued assets on the company’s books from fiscal 2007 through the third quarter of fiscal 2011to create a sustainable company’s revenue model from brokering life settlement transactions to the shareholders.
The CEO and General Counsel were additionally charged with Insider Trading for selling $11.5m and $300,000 respectively of Life Partners stock at inflated prices.
SEC’s Division of Enforcement director Robert Khuzami said that the shareholders were misled through baseless life expectancy estimates calculated by an unqualified medical doctor to the underlying insurance policies.
SEC’s Fort Worth Regional Office director David Woodcock added: "The senior-most executives at Life Partners concealed significant risks to the business, manipulated financial statements with improper accounting, and knowingly profited from their misconduct by executing insider trades based on information that was not available to the public."
The commission has also sought repayment to the company of stock sales profits and bonuses that were received by CEO and General Counsel, Pardo and Martin.
Life Partners is a Nasdaq-traded company that generates its revenues from brokering life settlements involving the purchase and sale of fractional interests of life insurance policies in the secondary market.