SEC Puts Life Partners Holdings on Notice of Possible Civil Action

<"">Life Partners Holdings, Inc., a company that markets life settlements, said last week it could be named in a Securities and Exchange Commission (SEC) civil action over some of its marketing practices. We reported in January that Life Partners Holdings had acknowledged that the SEC was looking into the firm’s methodology for estimating life expectancies for the life settlement investments it markets.

Life settlements, also sometime called viatical settlements, involve the sale of an existing life insurance policy to an investor. The investor pays required premiums on the policy, then collects its proceeds once the insured dies. A life expectancy estimate plays a key role in determining the value of such an investment. The shorter an insured’s life span is expected to be, the more a firm like Life Partners generally can charge investors for that policy. If the insured lives longer than is estimated, the payout is delayed, and investors must keep paying premiums as the person lives on.

Earlier this year, a Wall Street Journal investigation reported a significant portion of insured individuals were outliving Life Partners’ life expectancy estimates, a factor that would cut investors’ returns. Life Partners’ generally touted expected returns of 10 to 15 percent on Life Settlements. The Journal reported that many the insured people were living well beyond the estimates put out by Life Partners, making such returns for investors unlikely.

According to the Associated Press, Life Partners said in an SEC filing issued on Friday that it had received a “Wells Notice” from the agency on Monday. Such notices are a formal warning that regulators intend to file civil charges. According to the notice, SEC staff will recommend the agency file civil action alleging securities fraud violations against the company and two of its executive officers and directors, CEO Brian D. Pardo and general counsel and President R. Scott Peden.

According to Life Partners’ SEC filing, proposed civil action “relates to our knowledge of and disclosures about the accuracy of the estimates of the life expectancies of settlors.” Life Partners said the SEC could seek an “injunctive” action against it.

In addition to a possible SEC civil action, Life Partners is also facing a number of lawsuits filed by disgruntled investors. Some of those are seeking class action status.

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