Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | customerservice@law360.com
Life Partners Cleared Of Insider Trading In Mixed VerdictBy Dan Ivers
Law360, New York (February 04, 2014, 6:47 PM ET) -- A Texas federal jury returned a mixed verdict Monday in a U.S. Securities and Exchange Commission lawsuit accusing Life Partners Holdings Inc. and two of its top executives of artificially inflating stock prices, finding they committed revenue recognition fraud and violated accounting laws, but clearing them of insider trading and securities fraud offenses.
After deliberating over parts of three days, the panel exonerated the company, CEO Brian Pardo and general counsel and Secretary R. Scott Peden of eight of the 11 counts the SEC alleged they violated as part of a scheme to entice investors by understating the life expectancies of policyholders whose insurance policies it sold.
Pardo was accused of selling approximately $11.5 million in the inflated stock between 2007 and 2011, while Peden allegedly had peddled off around $300,000 worth.
Attorney Elizabeth L. Yingling, who represented Peden and Life Partners, called the outcome “a resounding victory for our defendants," saying the SEC had failed to prove the securities fraud counts that made up the “heart and soul of the case.”
Yingling said the defendants have filed motions to dismiss as a matter of law the counts that were upheld by the jury, citing a lack of evidence presented by the SEC at trial, with a ruling likely to come within the month.
“I don't believe that these claims should stand,” she said.
The jury upheld counts alleging the defendants misled investors in quarterly revenue reports that were certified by Pardo and failed to comply with accounting practices required by the Securities Exchange Act of 1934.
In a statement, SEC Division of Enforcement Director Andrew Ceresney cast the verdict as a win for the government.
"We’re very pleased the jury found Life Partners and its executives liable for knowingly or recklessly defrauding shareholders and filing false SEC filings. We’re also pleased the jury found Pardo, Life Partners’ CEO, responsible for falsely certifying that the company’s public filings were accurate when they were not,” he said.
Another defense attorney, S. Cass Weiland, dismissed the commission's take, calling the verdict “an important win” for Life Partners.
“The spin that the SEC is putting on it is kind of amazing,” he said.
An attorney representing Pardo could not be reached Tuesday for comment.
The SEC's road to the mixed verdict was at times troubled. A judge ordered sanctions against the agency in August 2012 for improperly issuing a subpoena to obtain testimony from a partner with Ernst & Young LLP, which formerly had served as Life Partners' auditor.
Life Partners vigorously denied the allegations throughout the course of the case, unsuccessfully arguing that the life settlements it trades in should not be classified as securities.
Based in Waco, Texas, Life Partners is among the largest companies on the secondary life insurance market, which allows investors to purchase policies from their original holders in exchange for a lump-sum payment. The investors then continue to pay the policy's premium in order to collect the payment when the person it covers dies.
The Life Partners parties were represented by Elizabeth L. Yingling, Laura J. O’Rourke, Will R. Daugherty and Meghan E. George of Baker & McKenzie LLP, J. Pete Laney of the Law Offices of J. Pete Laney, S. Cass Weiland and Robert A. Hawkins of Patton Boggs LLP and Jay Ethington of the Law Firm of Jay Ethington.
The case is SEC v. Life Partners Holdings Inc. et al., case number 1:12-cv-00033, in the U.S. District Court for the Western District of Texas.
--Additional reporting by Jess Davis. Editing by Richard McVay. |
