A news report says that the lawyer for a bankrupt life settlement company has filed papers opposing penalties against him following a magistrate’s ruling in a long-running legal dispute.
Says Law360: “The former top lawyer for bankrupt life settlement trader Life Partners Holdings Inc. urged a federal judge in Texas to reject a report and recommendation from a magistrate judge that he be held liable for the ‘bad actions’ of the company’s former CEO, who was found liable for securities violations.”
R. Scott Peden’s objection, filed Tuesday, said he was “wrongly been held accountable for actions” of Life Partners CEO Brian Pardo, according to the Law360 Report (linked here).
U.S. Magistrate Judge Andrew W. Austin issued an August 15, 2018 report and recommendation that granted in part, and denied in part, the motion to enter judgment on remand filed by the Securities and Exchange Commission (SEC). Magistrate Austin recommend that the U.S. District Court:
- Enter a permanent injunction enjoining Pardo and Peden from violating federal securities law;
- Deny the SEC’s request to order that Pardo and Peden be ordered to disgorge certain monies;
- Order that Pardo and Peden pay civil penalties, under federal securities law, in the amount of $130,000;
- Under a different provision of federal securities law, order that Pardo pay additional civil penalties of $3,555,000, and order that Peden pay additional penalties of $2,000,000; and
- Order Pardo, under the Sarbanes-Oxley Act, to reimburse Life Partners Holdings, Inc. in the amount of $1,325,566.
U.S. Magistrate Austin’s report also provided the following background about the matter:
This securities fraud case is before the Court after remand by the Fifth Circuit. The Honorable James R. Nowlin presided over a jury trial in this case commencing January 29, 2014. Life Partners Holdings, Inc. (LPHI) was in the business of facilitating the sales of life insurance policies to investors in the secondary market, commonly referred to as life settlements. LPHI, a publicly-held company, derived its income from the fees earned on these life settlement transactions. The Securities and Exchange Commission alleged that LPHI knew that its life expectancy estimates for the insureds (whose policies were being sold) were materially short, that life expectancy estimates were of ‘critical importance in determining the policy’s sale price’ . . . and that LPHI should have disclosed this knowledge in public filings as a known problem rather than an unmaterialized contingent risk.
At trial, the SEC alleged, and the jury ultimately found, that Brian Pardo, Scott Peden, and Life Partners Holdings, Inc., violated Section 17(a) of the Securities Act of 1933. The jury also found that LPHI, aided and abetted by Pardo and Peden, violated Section 13(a) of the Securities and Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder. In addition, the jury found that Pardo violated Exchange Act Rule 13a-14 by knowingly certifying false public reports that LPHI filed with the SEC during that period. After trial, the Court set aside the jury’s 17(a) verdicts and also declined to order reimbursement under Section 304 of the Sarbanes- Oxley Act of 2002. Nevertheless, the Court ordered disgorgement and civil penalties against the company and ordered Pardo and Peden to pay second-tier civil penalties of $6,161,843 and $2,000,000, respectively. The Court also enjoined all defendants from violating or aiding and abetting violations of Section 13(a) of the Exchange Act. SEC v. Life Partners Holdings, Inc., 71 F.Supp.3d 615 (W.D. Tex. 2014).
On cross-appeals, the Fifth Circuit Court of Appeals upheld the verdicts and judgments against Pardo and Peden, reinstated the jury’s verdict finding that Pardo and Peden violated Section 17(a), vacated the civil penalty orders, and reversed the Court’s ruling denying the SEC’s request for reimbursement under SOX 304. The Fifth Circuit remanded this matter for reassessment of the civil penalty amounts against Pardo and Peden, for determination of the SOX 304 reimbursement owed by Pardo, and for determination of the remedy appropriate for the violation of Section 17(a). SEC v. Life Partners Holdings, Inc., 854 F.3d 765 (5th Cir. 2017).
Some previous Secondary Insurance Market Blog posts about litigation over Life Partners’ business include the following:
- Federal Appeals Court Affirms Restitution Order For STOLI Investors, here;
- Life Partners Bankruptcy Provides Litigator With Strange Day In Court, here;
- Judge Approves Life Partners Reorganization Plan, here;
- In Life Partners Bankruptcy Proceeding, Wall Street Journal Describes Difficult Decisions, ‘Rotting Fish’ Deal, here;
- Report: Life Partners Decision Breathes New Life Into Securities Lawsuits, here.