Texas Judge OKs $1B Deal In Life Partners Investor Litigation By Shayna Posses
Law360, New York (May 31, 2016, 1:36 PM ET) -- A Texas bankruptcy judge has approved a more than $1 billion deal floated by Life Partners Holdings’ court-appointed bankruptcy trustee to resolve class action litigation alleging that thousands of investors were duped into purchasing bad life insurance settlements with promises of big returns.
U.S. Bankruptcy Judge Russell F. Nelms signed off on a settlement Friday that covers legal claims brought on behalf of more than 20,000 investors, resolving a major hurdle in Life Partners Holdings Inc.’s quest to restructure after filing for bankruptcy early last year.
The settlement, filed in April, came 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 parties’ agreement provides for the certification of a settlement class in Life Partners’ bankruptcy cases for purposes of voting on a Chapter 11 plan. The class 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 also caps 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.
Judge Nelms appointed Keith L. Langston of The Langston Law Firm as class counsel on Friday.
Attorneys for Moran and the plaintiffs have said 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 bankruptcy judge agreed that the agreement was fair and reasonable, explaining that the deal resolves the ownership issue and makes the prospect of a confirmed Chapter 11 plan that maximizes recovery for claimholders more likely.
“The complexity, expense, inconvenience, and delay of litigation is overwhelming and, in some respects, would waste the assets of the estates that otherwise would be available for creditors who ultimately hold allowed claims in this case,” the order said. “Any delay caused by litigation or otherwise jeopardizes the ongoing administration of the estates.”
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.
A representative for the investors declined to comment Tuesday. Representatives for Moran weren’t available for comment.
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.
--Additional reporting by Jonathan Randles. Editing by Kelly Duncan.
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