BREAKING: Life Partners To Pay Over $1B To Settle Investor Suits By Jonathan Randles
Law360, New York (April 4, 2016, 12:06 PM ET) -- Life Partners Holdings court-appointed bankruptcy trustee has agreed to resolve for more than $1 billion class action litigation brought on behalf of thousands of investors who claim they were duped into purchasing bad life insurance settlements with promises of big returns.
The settlement, which must be approved by the court, covers legal claims brought on behalf of more than 20,000 investors and resolves a major hurdle in Life Partners’ quest to restructure after filing for bankruptcy early last year.
The settlement papers, filed Friday in Texas bankruptcy court, comes weeks after Chapter 11 trustee H. Thomas Moran II said in a report that Life Partners and its former CEO Brian Pardo engaged in one of the largest frauds in Texas history.
Moran claims that under Pardo’s direction, Life Partners solicited investors to purchase a stake in life insurance policies the company acquired. Life Partners acquired the policies for less than the total value of the policies, which mature when a person dies. It will take decades for all of the policies in Life Partners’ portfolio to mature, Moran said.
According to the trustee, Pardo and Life Partners trumpeted these investments utilizing life expectancy figures that were far shorter than they actually were, deceiving investors, many of them elderly, who were led to believe they would receive double-digit returns.
The agreement submitted to the court Friday would provide for the certification of a settlement class in Life Partners’ bankruptcy cases for purposes of voting on a Chapter 11 plan. The settlements would be broken into various subclasses, the largest of which includes 11,322 investors.
The total value of the settlement for class members is currently estimated at $1,078,582,000, according to court documents. The settlement would also cap attorneys fees for plaintiffs counsel at $33 million. The present value of the fees, which would be paid out over time, is $5,219,043 and must be approved by the bankruptcy court.
Attorneys for Moran and the plaintiffs say the settlement serves the interest of both the estate and the investors because it averts the need to continue litigation that they say would be costly and time-consuming. There’s also an open question on the ownership of the life insurance policies that could undermine investors’ position in the litigation, court papers say.
“The estate representatives realized that resolution of the consolidated class adversary and the ownership issue was critical and necessary to the formulation and confirmation of the plan,” the filing said. “If the trustee prevailed in the consolidated class adversary, then there was substantial risk that the creditors (largely settlement class members) would not support any plan that was premised on such an outcome.”
Life Partners filed for bankruptcy in 2015 in response to a $47 million jury verdict obtained by the SEC. At the time of Life Partners' bankruptcy, $1.4 billion in investor funds were at risk, according to the trustee.
In September, Moran sued Pardo for more than $40 million in damages over money he transferred to himself and his family. Pardo served as Life Partners’ CEO and chairman until early 2015, according to the trustee.
Attorneys for Moran and the plaintiffs could not immediately be reached for comment Monday.
Moran is represented by David M. Bennett, Richard B. Roper and Katharine Battaia Clark of Thompson & Knight LLP.
The plaintiffs are represented by Bieging Shapiro & Barber LLP, Langston Law Firm and Sternklar Law, LLC.
The case is In re: Life Partners Holdings Inc., case number 4:15-bk-40289, in the U.S. Bankruptcy Court for the Northern District of Texas.
--Editing by Rebecca Flanagan.
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