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Texas Regulator Sues Life Partners - WSJ.com
The Texas state securities board said it sued Life Partners Holdings Inc. for failure to comply with subpoenas issued as part of an investigation, adding to the woes of a company that has already received a warning that it may be sued by the Securities and Exchange Commission.
Life Partners, of Waco, Texas, is a major player in the "life settlement" business. It arranges to buy unwanted life-insurance policies, then sells pieces of those policies to retail clients. The clients pay the premiums and collect when the insured people die. The company has arranged for transactions involving life policies with a face value of about $2.8 billion.
Life Partners has been enmeshed in controversy over whether it has provided inaccurately short estimates of how long the insured people are likely to live, a key part of the investment equation.
Although the SEC probe into Life Partners has been public since early 2011, the separate Texas state investigation hadn't been publicly known until Friday's court action.
The Texas investigation could be important, because the SEC generally has jurisdiction only over the company's publicly traded shares, while Texas is investigating possible wrongdoing in the underlying investments in life policies that Life Partners sold to thousands of retail investors.
In its complaint, the Texas securities board said it has been investigating Life Partners since mid-2010. The agency issued fresh subpoenas in June 2011, seeking a broad array of records from Life Partners. The agency is seeking a court order to compel Life Partners and its officers to comply with the subpoenas.
R. Scott Peden, Life Partners' general counsel, didn't immediately return a call and email requesting comment. The defendants in the Texas action include Mr. Peden and Brian Pardo, Life Partners' chief executive, along with Life Partners and a subsidiary.
According to a June 2011 letter from an outside lawyer of Life Partners, attached to the legal complaint, the company declined to respond to the subpoenas, citing a prior Texas court ruling that its insurance products weren't securities. Therefore, the letter said, Life Partners believes the state securities board has "no jurisdiction" over the company's activities.
The Texas investigation adds to a string of problems for Life Partners, which is being sued in numerous court actions by shareholders and investors in its life-settlement products.
Last month, Ernst & Young LLP resigned as Life Partners' outside auditor and withdrew its opinion on the prior year's results. Life Partners has since engaged a smaller firm as its outside auditor. Life Partners has yet to file its annual report for fiscal 2011, which ended Feb. 28, 2011.
The company's controversial life-expectancy estimates were a focus of a December page-one article in The Wall Street Journal. In policies Life Partners brokered in 2002, for example, the Journal found that 95% of the insured people were still living after the life-expectancy period estimated by Life Partners' physician.
In mid-May, the company said it had received a so-called Wells notice from the SEC, which indicated the agency's staff planned to recommend to the commission civil charges against the company and two top executives related to the life-expectancy estimates.
Such a notice gives potential targets a chance to dissuade the regulator from filing the charges.
Life Partners in June said it received an amended Wells notice which said the SEC had expanded its focus to include accounting issues, and also to include another executive.
The company previously has said it intended to tell the SEC why it believed charges weren't
The Texas state securities board said it sued Life Partners Holdings Inc. for failure to comply with subpoenas issued as part of an investigation, adding to the woes of a company that has already received a warning that it may be sued by the Securities and Exchange Commission.
Life Partners, of Waco, Texas, is a major player in the "life settlement" business. It arranges to buy unwanted life-insurance policies, then sells pieces of those policies to retail clients. The clients pay the premiums and collect when the insured people die. The company has arranged for transactions involving life policies with a face value of about $2.8 billion.
Life Partners has been enmeshed in controversy over whether it has provided inaccurately short estimates of how long the insured people are likely to live, a key part of the investment equation.
Although the SEC probe into Life Partners has been public since early 2011, the separate Texas state investigation hadn't been publicly known until Friday's court action.
The Texas investigation could be important, because the SEC generally has jurisdiction only over the company's publicly traded shares, while Texas is investigating possible wrongdoing in the underlying investments in life policies that Life Partners sold to thousands of retail investors.
In its complaint, the Texas securities board said it has been investigating Life Partners since mid-2010. The agency issued fresh subpoenas in June 2011, seeking a broad array of records from Life Partners. The agency is seeking a court order to compel Life Partners and its officers to comply with the subpoenas.
R. Scott Peden, Life Partners' general counsel, didn't immediately return a call and email requesting comment. The defendants in the Texas action include Mr. Peden and Brian Pardo, Life Partners' chief executive, along with Life Partners and a subsidiary.
According to a June 2011 letter from an outside lawyer of Life Partners, attached to the legal complaint, the company declined to respond to the subpoenas, citing a prior Texas court ruling that its insurance products weren't securities. Therefore, the letter said, Life Partners believes the state securities board has "no jurisdiction" over the company's activities.
The Texas investigation adds to a string of problems for Life Partners, which is being sued in numerous court actions by shareholders and investors in its life-settlement products.
Last month, Ernst & Young LLP resigned as Life Partners' outside auditor and withdrew its opinion on the prior year's results. Life Partners has since engaged a smaller firm as its outside auditor. Life Partners has yet to file its annual report for fiscal 2011, which ended Feb. 28, 2011.
The company's controversial life-expectancy estimates were a focus of a December page-one article in The Wall Street Journal. In policies Life Partners brokered in 2002, for example, the Journal found that 95% of the insured people were still living after the life-expectancy period estimated by Life Partners' physician.
In mid-May, the company said it had received a so-called Wells notice from the SEC, which indicated the agency's staff planned to recommend to the commission civil charges against the company and two top executives related to the life-expectancy estimates.
Such a notice gives potential targets a chance to dissuade the regulator from filing the charges.
Life Partners in June said it received an amended Wells notice which said the SEC had expanded its focus to include accounting issues, and also to include another executive.
The company previously has said it intended to tell the SEC why it believed charges weren't
