US regulator the Securities & Exchange Comission has charged a life settlements brokerage and three senior executives for their involvement in a fraudulent disclosure and accounting scheme.
The probe relates to Texas-based company Life Partners Holdings, and has seen Brian Pardo, chairman and chief executive, Scott Peden, general counsel, and David Martin, chief financial officer, charged.
The regulator has alleged that the trio misled shareholders “by failing to disclose a significant rise to Life Partners’ business”.
The SEC alleges the company was “systematically and materially underestimating the life expectancy estimate it used to price transactions”.
The US regulator also alleges that the company and three executives were involved in “disclosure violations and improper accounting” used to “overvalue assets held on the company’s books and create the appearance of a steady stream of earnings from brokering life settlement transactions”.
It also claims that Pardo and Peden took part in insider trading in Life Partners stock “while in possession of material, non-public information indicating that the company had systematically and materially underestimated life expectancy estimates”.
SEC division of enforcement director Robert Khuzami says: “Life Partners duped its shareholders by employing an unqualified medical doctor to assign baseless life expectancy estimates to the underlying insurance policies.
“This deception misled shareholders into thinking that the company’s revenue model was sustainable when in fact it was illusory.”
In a statement, the company claimed the lawsuit was “without merit” and would “vigorously defend itself and its officers”.
Pardo adds: “It is very disappointing that the SEC has chosen to pursue litigation over issues that we believe have no merit and financial presentation issues that we do not believe are material.
“We have always done our best to deliver value to our shareholders and to run an honest and transparent company. We intend to vigorously defend ourselves against these meritless claims.”
The company added that the SEC lawsuit had targeted Life Partners Holdings, Inc. and certain officers, but not the company’s operating subsidiary Life Partners Inc and would have no effect on any of the subsidiary’s transactions or clients.
The SEC’s investigation is continuing.