Friday, March 27, 2015

No. 92: Life Partners' Bankruptcy—A Few Recent Developments

As I reported in No. 90 posted March 17, H. Thomas Moran II has been appointed the Chapter 11 Trustee in the federal bankruptcy court proceedings involving Life Partners Holdings, Inc. (LPHI). I wrote extensively about LPHI in The Insurance Forum over a period of 15 years, and I posted 23 items about the company on my blog over the past 15 months. Here I report a few recent developments.

Trustee Appointment Status
On March 10, as I previously reported, Bankruptcy Court Judge Russell F. Nelms ordered the U.S. Trustee to appoint a Chapter 11 Trustee for LPHI. On March 13, the U.S. Trustee appointed Moran the Chapter 11 Trustee, subject to the approval of Judge Nelms. On March 19, Judge Nelms approved the appointment.

Delisting by Nasdaq
On March 18, Nasdaq announced it had halted trading in LPHI shares after the close of trading that day. The last price was 24 cents per share. Nasdaq said trading will remain halted until LPHI "has fully satisfied Nasdaq's request for additional information."

In an 8-K (material event) report that LPHI filed with the Securities and Exchange Commission (SEC) on March 12, LPHI said a hearing on the matter of delisting was scheduled for March 19. It is my understanding that Moran canceled the hearing.

First Posting by Moran
On March 20, Moran posted the first item on a new website at www.lphitrustee.com to communicate with interested parties. The item describes the background of the case, comments briefly on the current status of the case, identifies four attorneys from the Dallas firm of Thompson & Knight LLP, and invites interested parties to submit questions to questions@lphitrustee.com. Following that initial posting, additional material has been posted for the information of interested parties.

Seizure of Pardo's Property
On March 23, according to local newspaper and television reports in Waco, Texas, LPHI's home city, federal law enforcement officials seized luxury vehicles from the home of Brian Pardo, the former chairman and chief executive officer of LPHI. According to the reports, at least two Mercedes vehicles were confiscated. Pardo has not paid the $6.2 million civil penalty imposed on him by the federal district court and, as I reported in No. 88, the federal district court has placed liens on Pardo's property.

An Important Filing
On March 25, on behalf of Moran, attorneys at Thompson & Knight filed an emergency motion to amend LPHI's governing documents and to file voluntary Chapter 11 petitions for LPHI's two subsidiaries. They are Life Partners, Inc. (LPI), which is LPHI's operating subsidiary in the secondary market for life insurance, and the recently formed LPI Financial Services, Inc. (LPIFS).

The motion describes the background of the case, including the civil lawsuit by the SEC. Aside from the bankruptcy case and the SEC case, the motion says there are 11 open cases against LPHI/LPI in federal courts and 12 open cases against LPHI/LPI in state courts (seven in Texas, three in California, one in Florida, and one in Illinois). Also, LPHI is appealing the decision in the SEC case to the U.S. Court of Appeals for the Fifth Circuit, and is appealing decisions of two Texas appellate courts to the Texas Supreme Court. Here is the concluding paragraph of the motion:
WHEREFORE, the Trustee respectfully requests that this Court enter an order granting this Motion in its entirety and authorizing him to cause [LPHI], LPI, and LPIFS, as applicable, to (i) remove the current members of the boards of directors of LPI and LPIFS, (ii) amend the governing documents of LPI and LPIFS, entities wholly owned and managed by LPHI, (iii) elect the Trustee as the sole director of each of LPI and LPIFS, (iv) take such actions as are necessary to cause LPI and LPIFS to file voluntary chapter 11 bankruptcy petitions, seeking joint administration with the estate of [LPHI], and (v) granting such other and further relief this Court deems just and proper.
General Observations
The actions taken in coming weeks by Moran and Judge Nelms bear close watching. I think they will make their decisions in what they believe are the best interests of all parties affected by the LPHI proceedings.

I am offering a complimentary PDF containing the 18-page emergency motion that Moran just filed in the bankruptcy court. Send an e-mail to jmbelth@gmail.com and ask for the LPHI/Moran March 25 motion.

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Monday, March 23, 2015

No. 91: Northwestern Mutual—The Proposed Settlement of a Long Dispute over Annuity Dividends

On March 13, 2015, Marleen M. LaPlant, the plaintiff in a long dispute with Northwestern Mutual Life Insurance Company (Milwaukee, WI), filed in federal court a motion for preliminary approval of a settlement. The case relates to a change the company made in 1985 in its method for determining dividends on certain previously issued fixed dollar annuities. The company has agreed to the settlement.

Origin of the Dispute
Prior to 1985, Northwestern determined annuity dividends based on investment returns on the company's entire general account. In the early 1980s, the U.S. experienced an inverted yield curve, where short-term interest rates were higher than long-term interest rates. In 1985, the company introduced "MN annuities" that were credited with dividends based on the interest earnings from a portfolio of short-term bonds. At the same time, the company began crediting dividends on previously issued ("pre-MN") annuities based on the interest earnings from the portfolio of short-term bonds. In the short term, the change meant larger dividends on the pre-MN annuities, but over the long term—when interest rates returned to normal levels—it meant the dividends on the pre-MN annuities were smaller than if the dividends had been based on the investment returns on the company's entire general account.

A major problem was the manner in which Northwestern instituted the change regarding the pre-MN annuities. The company changed the method of determining dividends on the pre-MN annuities without advance notice to the annuitants, without disclosing the change to the annuitants, without offering the annuitants the opportunity to accept or reject the change, and by phasing in the change in such a way as to make it difficult for the annuitants to be aware of the change.

The LaPlant Lawsuit
In August 2008, LaPlant filed a class action lawsuit in state court in Wisconsin on behalf of herself and other pre-MN annuitants. She alleged that Northwestern, in determining dividends on the pre-MN annuities, had breached the contracts and breached its fiduciary duty. The company said it had not breached the contracts and had not breached its fiduciary duty. The company also said its method of determining dividends was consistent with the contracts, did not violate Wisconsin law, was in accordance with actuarial standards, and had been approved by insurance regulators. (See LaPlant v. Northwestern, State of Wisconsin, Milwaukee County Circuit Court, Case No. 08-cv-11988.)

In October 2009, Reserve Circuit Judge Dennis J. Flynn certified a state class. In November 2010, he presided over a two-week bench trial. In March 2011, he handed down a 97-page decision saying the company had breached the contracts and breached its fiduciary duty.

My Articles about the Case
I felt the case was important, and wrote about it in the lead article in the May 2011 issue of The Insurance Forum. I wrote follow-up articles in the July 2011, June 2013, and December 2013 issues. In the conclusion of the first of the four articles, I said:
Northwestern has long and justifiably prided itself on fair treatment of participating policyholders. That is why this case is a major defeat for the company.
The Recusal Motion
Three weeks after Judge Flynn's decision, Northwestern filed a motion that the judge recuse himself. The company had discovered that the judge owned a pre-MN annuity that he had surrendered in 1979, six years before the company made the change in its method of determining dividends on the pre-MN annuities. The cash surrender value of the judge's annuity was $1,456. Judge Flynn denied the recusal motion.

Northwestern petitioned the Wisconsin Court of Appeals to hear an appeal of the denial of the recusal motion. The appellate court denied the petition.

The Regulatory Issue
Northwestern said it had obtained regulatory approval of the 1985 change in the method of determining dividends on the pre-MN annuities. In 1984, the company informed the New York Department of Insurance of the change. The company said it intended to disclose the change in releases to its agents and the media, in its annual report, and in dividend notice stuffers sent to annuitants. The Department approved the change conditioned on those disclosures. However, the company did not make the disclosures.

Northwestern informed the Wisconsin Office of the Insurance Commissioner of the change and the New York Department's approval of the change. The Office raised no objections, and the company viewed the change as having been approved by the Office.

Recent Developments
In 2010, the parties, with the help of a mediator, attempted to resolve the dispute by reaching an agreement. The effort failed.

In September 2011, LaPlant filed a motion to expand the state class (about 3,300 annuitants) to a national class (about 33,000 annuitants). Northwestern removed the case to federal court. LaPlant filed a motion in federal court to return the case to the state court. In August 2012, the federal district court granted the motion to return the case to the state court. (See LaPlant v. Northwestern, U.S. District Court, Eastern District of Wisconsin, Case No. 2:11-cv-910.)

Northwestern appealed the federal district court decision. In November 2012, a three-judge appellate panel vacated the federal district court decision and sent the case back to the federal district court to decide whether to expand the state class to a national class. (See LaPlant v. Northwestern, U.S. Court of Appeals, 7th Circuit, Case No. 12-3264.)

In March 2013, LaPlant filed a motion in the federal district court to expand the state class to a national class. Northwestern opposed the motion and filed a motion to decertify the Wisconsin class. The court has not acted on those motions.

In May 2014, the parties, with the help of a different mediator, undertook a second effort to resolve the dispute by reaching an agreement. This time the effort succeeded. On September 9, 2014, the parties entered into a memorandum of understanding to resolve all the claims of the national class, including the claims in the related cases. They selected a settlement administrator, a notice provider, and an escrow agent. Later they entered into the recently announced settlement.

The Proposed Settlement
Plaintiff experts estimate that the losses suffered by the annuitants are from $100 million to $278 million. Northwestern disputes that there are any damages.

The gross amount of the settlement is $84 million. That will be reduced by plaintiff attorneys' fees in the LaPlant case and the related cases (not to exceed 35 percent of the gross amount of the settlement), plaintiff attorneys' expenses, cost of notice to class members, cost of claims administration, and payments to class representatives in the various cases. I think the net amount of the settlement will be around $50 million.

The recent motion asks the federal district court to approve the settlement on a preliminary basis to allow notices to be sent to the annuitants, and to certify the national class solely for purposes of the settlement. The notices will explain the case. The annuitants will be given the opportunity to opt out of the settlement, register objections, and be heard at the final fairness hearing. According to the proposed schedule, final court approval is at least five months away.

General Observations
LaPlant and the plaintiffs in the related cases did not commence legal action when they were receiving larger dividends than they would have received without the 1985 change. In other words, they took action only when they began receiving smaller dividends as a result of the change. That may be a partial explanation for Northwestern's long and bitter opposition to the lawsuit. For example, the company's recent letter to employees announcing the settlement includes this sentence:
According to Rodd Schneider, vice presidentlitigation counsel in the Law department, the lawsuit was a case of a small group of customers seeking more than its fair share of dividends, which would have come at the expense of all our other policyowners.
On the other hand, it is also true that Northwestern made the change unilaterally and sought to conceal it. That was out of character for the company. In previous situations, the company announced policy or contract changes and offered policyholders the opportunity to accept or reject the changes. For example, in the 1970s the company announced a policy loan interest rate amendment program. The company had begun issuing policies with a variable policy loan interest rate subject to a maximum of 8 percent. In the amendment program, the company offered policyholders with a 5 percent or 6 percent fixed policy loan interest rate the opportunity to change to the variable policy loan interest rate subject to the 8 percent maximum. In exchange for agreeing to the amendment, policyholders became entitled to enhanced dividends.

In my opinion, the lawsuits were justified. I also believe that Judge Flynn got it right. Whether the settlement will receive final approval remains to be seen.

Available Material
For those keenly interested in the case, I offer a complimentary 86-page PDF consisting of five documents: the 3-page motion, the 24-page memorandum in support of the motion, the 4-page declaration in support of the motion, the 3-page plan of allocation, and the 52-page settlement agreement. Send an e-mail to jmbelth@gmail.com and ask for the settlement package in the LaPlant case.

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Tuesday, March 17, 2015

No. 90: Life Partners—The U.S. Trustee Appoints Thomas Moran the Chapter 11 Trustee

On March 13, 2015, the U.S. Trustee appointed H. Thomas Moran II the Chapter 11 Trustee in the Life Partners Holdings, Inc. (LPHI) bankruptcy case. The appointment of Moran is not a surprise; as mentioned below, the Securities and Exchange Commission (SEC), even before LPHI's bankruptcy filing, recommended that the district court appoint Moran the receiver. He is chief executive officer of Asset Servicing Group LLC, 521 West Wilshire Boulevard, Suite 200, Oklahoma City, OK 73116, telephone (405) 753-9100. Biographical information about him and his associates is on the company's website (www.asgllc.us).

Background
LPHI is the parent of Life Partners, Inc. (LPI), an intermediary in the secondary market for life insurance. In January 2012, the SEC filed a civil lawsuit against LPHI and its top officers alleging violations of federal securities laws. The case was assigned to U.S. Senior District Court Judge James R. Nowlin. After the trial in January 2014, the jury found in favor of the defendants on some allegations and against the defendants on some allegations.

On December 2, 2014, Judge Nowlin handed down an Order. On January 16, 2015, he handed down a Final Judgment confirming the terms of his December 2 Order. He imposed civil penalties on LPHI of more than twice the company's total assets. Also, he imposed large civil penalties on two LPHI officers: Brian D. Pardo, chairman and chief executive officer; and R. Scott Peden, general counsel.

Other Recent Developments
On January 5, 2015, the SEC filed a motion for the appointment of a receiver to "protect investors and LPHI's creditors," "ensure that its current officers...are unable to continue to waste assets," and "ensure that LPHI is operated in compliance with the federal securities laws." The SEC recommended that Moran be appointed the receiver. (See SEC v. LPHI, U.S. District Court, Western District of Texas, No. 1:12-cv-33.)

On January 20, LPHI filed for protection under Chapter 11 of the federal bankruptcy law. The case was assigned to U.S. Bankruptcy Court Judge Russell F. Nelms. On March 10, Judge Nelms ordered the U.S. Trustee to appoint a Chapter 11 Trustee for LPHI. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, No. 15-40289.)

General Observations
It will be interesting to see Moran's progress reports. In light of the comments by Judge Nelms in the March 9 hearing that preceded his March 10 Order (I offered the hearing transcript in No. 89), I think he and Moran will do everything possible to protect those with fractional interests in LPI's life settlements.

I offer a complimentary 14-page PDF consisting of the 2-page March 13 notice of Moran's appointment and the 12-page January 5 SEC motion for appointment of a receiver in the district court case. Send an e-mail to jmbelth@gmail.com and ask for the SEC-LPHI March 17 package.

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Friday, March 13, 2015

No. 89: Life Partners—The Bankruptcy Court Judge Comes Down Hard on the Company's Former Management

In No. 88 posted March 12, I reported that, on March 10, U.S. Bankruptcy Court Judge Russell F. Nelms granted the motion of the Securities and Exchange Commission (SEC) and ordered the U.S. Trustee to appoint a Chapter 11 Trustee for Life Partners Holdings, Inc. (LPHI). I also said I had not seen Judge Nelms' findings of fact and conclusions of law referred to in his Order. I now have the 32-page transcript of the 48-minute March 9 hearing at which Judge Nelms placed his findings of fact and conclusions of law on the record.

The Hearing
In attendance at the hearing, in person or by telephone, were attorneys representing the SEC, LPHI, certain LPHI shareholders, the U.S. Trustee, an ad hoc committee of investors in fractional interests, Advance Trust & Life Escrow Services, the Official Committee of Unsecured Creditors, and plaintiffs in the Arnold case. Also in attendance were an investor in fractional interests, two monitors, and the reporter.

Judge Nelms explained five principles that guided him in his ruling. He discussed the judgment handed down by Senior U.S. District Court Judge James R. Nowlin in the SEC lawsuit against LPHI, Brian D. Pardo, and R. Scott Peden, the jury findings in the case, and a series of issues in the case. Among those issues are the continued use (until February 2015) of life expectancy estimates by Dr. Cassidy, the ministerial fees imposed in 2014, the continued payment of dividends to LPHI shareholders in recent years (even in September 2014), the level of Pardo's compensation in recent years, the continued subservience of the LPHI board of directors to Pardo, and the most recent 8-K (material event) report and the accompanying letter and press release that created "panic" among investors in fractional interests. In summary, Judge Nelms said:
Finally, cause exists and the best interests of all parties would be served by appointing a trustee because someone needs to come into this case and calm the waters. In the last three months, a $40 million judgment has been entered against the Debtor, the Debtor has filed bankruptcy, Pardo and Peden have resigned, and the Debtor told creditors that a trustee would likely pool their interests. Naturally, investors and shareholders are concerned. Premiums are at risk. Someone needs to come into this case and assure everyone that they have a voice and that voice will be heard. And that message needs to come from someone who does not sound like they are contradicting themselves.
Finally, someone needs to come into this case and remind every party in interest of the role that this Court plays in this process. Nothing outside of the ordinary course of business is going to happen to this Debtor without this Court saying so. And this Court will not say so without according to all parties their rights under the law, including their rights of due process.
So, for these reasons, I will grant the SEC's motion to appoint a trustee.
General Observations
I came away from reading the transcript with the belief that Judge Nelms has provided a strong statement of the need for a Chapter 11 Trustee in the LPHI case. I also believe that the best way for readers to understand the matter is to read the transcript for themselves.

Therefore I am offering a complimentary 32-page PDF containing the transcript of the hearing. Send an e-mail to jmbelth@gmail.com and ask for the transcript of the Nelms March 9 hearing in the LPHI case.

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Thursday, March 12, 2015

No. 88: Life Partners—The Bankruptcy Court Judge Orders the Appointment of a Chapter 11 Trustee

On March 10, 2015, after a seven-week legal battle, U.S. Bankruptcy Court Judge Russell F. Nelms ordered the U.S. Trustee to appoint a Chapter 11 Trustee for Life Partners Holdings, Inc. (LPHI), subject to the court's approval. LPHI is the parent of Life Partners, Inc. (Waco, TX), which is an intermediary in the secondary market for life insurance policies. In ten posts (Nos. 75, 77, 78, 79, 80, 81, 82, 83, 84, and 86) I discussed developments at LPHI during the past few months.

The SEC Lawsuit
In January 2012, the Securities and Exchange Commission (SEC) filed a civil lawsuit against LPHI and its top officers alleging violations of federal securities laws. The case was assigned to U.S. Senior District Court Judge James R. Nowlin.

In January 2014, the case went to trial. The jury found in favor of the defendants on some allegations and against the defendants on some allegations. Judge Nowlin later threw out some and retained some of the jury findings against the defendants.

On December 2, 2014, Judge Nowlin handed down a Final Judgment Order. It was a death sentence for LPHI because the civil penalties imposed on the company were more than twice the company's total assets. Also, Brian D. Pardo, chairman and chief executive officer of LPHI, and R. Scott Peden, general counsel of LPHI, were ordered to pay civil penalties of $6.2 million and $2 million, respectively. (See SEC v. LPHI, U.S. District Court, Western District of Texas, No. 1:12-cv-33.)

Recent Developments
On December 30, LPHI began the process of appealing the Final Judgment Order. The appeal is in its early stages. (See SEC v. LPHI, U.S. Court of Appeals, Fifth Circuit, No. 14-51353.)

On January 16, 2015, Judge Nowlin handed down a Final Judgment confirming the terms of the December 2 Final Judgment Order. Pardo and Peden were ordered to pay their penalties within 30 days. They were not able to obtain surety bonds or post sufficient collateral to obtain a stay of the Final Judgment pending appeal. The penalties have not been paid. On February 19, the district court placed 20-year liens (subject to renewal) on all real property owned by Pardo and Peden.

On January 20, LPHI filed for protection under Chapter 11 of the federal bankruptcy law. The case was assigned to Judge Nelms. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, No. 15-40289.)

On January 23, the SEC filed a motion for appointment of a Chapter 11 Trustee. The U.S. Trustee and an official committee of unsecured creditors filed similar motions. LPHI opposed the motions, instead seeking the appointment of a chief restructuring officer.

In February and early March, Judge Nelms held a six-day hearing on the motions. On February 18, between two of the hearing days, LPHI made a desperate attempt to avoid appointment of a Chapter 11 Trustee. Pardo resigned from his executive and board positions, and became a consultant. Peden also resigned his executive positions. Colette Pieper, the chief financial officer and not a defendant in the case, was appointed the chief executive officer. At the same time, LPHI also took other actions.

The March 10 Order
The March 10 Order is brief. After referring to the January 23 SEC motion for appointment of a Chapter 11 Trustee, Judge Nelms said:
Finding that service and notice of the Motion and the hearing thereof was sufficient and appropriate under the particular circumstances, the Court having held an evidentiary hearing on this matter on February 9, 10, 12, 17, and 19, and March 3, 2015, and having rendered findings of fact and conclusions of law on the record on March 9, 2015, it is hereby:
ORDERED that the Motion is GRANTED, and it is further
ORDERED that the United States Trustee shall appoint a Chapter 11 Trustee, subject to the Court's approval.
I have not seen the March 9 "findings of fact and conclusions of law" referred to in the Order. When I do, I plan to report on them. Judge Nelms also issued a brief Order denying as "moot" the U.S. Trustee's motion for appointment of a Chapter 11 Trustee.

General Observations
When the U.S. Trustee makes its appointment, presumably we will learn the identity of the Chapter 11 Trustee. Hopefully we will also learn more than is found in the general language of the federal bankruptcy law about the duties of the Chapter 11 Trustee in this particular case.

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Monday, March 9, 2015

No. 87: Life Insurance Replacement—Let's See the Numbers

In No. 69 posted September 30, 2014, I discussed the debate over the nature of sales illustrations that should be allowed in the promotion of indexed universal life (IUL) policies. I offered readers a 23-page "IUL package" of documents relating to the debate.

Recently a reader sent me a request for the IUL package. He made some comments that led to an exchange of e-mails. He said he is
genuinely helping owners of older, permanent policies change or restructure them away from the too often "dead money" of old policies into something current much more powerful. My default carrier is Penn Mutual and my nemesis is NML [Northwestern Mutual Life] because of their too successful tactics of being your best friend while picking your pocket.
When I sent him the IUL package, I said I was puzzled by his remarks. I asked what he meant by "something current much more powerful," his "default carrier is Penn Mutual," and NML "picking your pocket."

He responded: "Penn Mutual came highly recommended and my experience has been consistent with those recommendations." He also said:
I have found numerous people/clients with 15-20+ year old permanent policies who can get much greater death benefits and ultimately cash value (after recovering the initial reduction) by 1035ing the cash into a new policy. The old policies are consistently projected to perform much more poorly than a new one but the existing carrier virtually never offers to restructure it unless at risk of losing the policy. There's no reason an old policyholder should accept below market returns for life but typically don't know how to proceed. Mortgages are refinanced frequently but the lack of transparency and self interest make refinancings in insurance much less common.
Most old policies can be improved including NML. They can be greatly improved on but the tenacity (and mendacity) of the agents (through badmouthing other carriers, misrepresenting returns, etc.) frustrates me because they too often succeed in their interests but at the expense of the policyholders in whose interests they claim to work.
I responded that I am not from Missouri but still need to be shown. I asked him to consider a man who bought a $100,000 traditional whole life policy from NML ten years ago at age 35. I asked him to give me figures that show how the man could improve his financial position today by replacing the NML policy through a 1035 exchange with a new Penn Mutual policy. In response he said:
Can't take the time to do that right now, but the approach would be to compare an illustration of a new policy using cash value transferred, paying the same premium, same age etc. vs. in-force illustration of existing policy. It may not be perfect but the improvement is usually dramatic. Often when the policyholder requests the in-force illustration, the agent of the carrier offers to improve the policy.
I said I still need to see the numbers. He said he understood but can't take the time to do it now. He said he will try to do it sometime soon.

General Observations
I have often said some replacements are justified from a price standpoint, some are not justified, and some situations are a toss-up. I said serious consideration should be given to replacement only when it is clearly justified.

The unwarranted replacement situation that I discussed in No. 76 (posted December 15, 2014) admittedly was an extreme case. However, I have never seen a situation where the replacement of a seasoned cash-value life insurance policy issued by NML was justified from a price standpoint. That is what prompted me to ask my reader to show me the numbers. I hope that some day soon he will perform the analysis I requested.

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Monday, March 2, 2015

No. 86: Life Partners—The NASDAQ Delisting Situation

In No. 84 posted February 25, I reviewed several significant recent developments since Life Partners Holdings, Inc. (LPHI) filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy law. Subsequent to the filing, LPHI received three notifications concerning the possible delisting of its shares, which are traded on NASDAQ.

The First Notice
On January 20, the day of the bankruptcy filing, NASDAQ notified LPHI that the bankruptcy filing placed the company in violation of NASDAQ listing rules, and that the company's shares therefore will be delisted. LPHI said it was planning to appeal the ruling and that, if the appeal is not successful, the shares may be eligible to be quoted on the Pink Sheets if a market maker applies to perform that function and is approved.

The Second Notice
On February 2, NASDAQ notified LPHI that the company did not meet the minimum bid price requirement in NASDAQ listing rules because the minimum bid price per share was below $1.00 for 30 consecutive days. The price lately has been fluctuating in a fairly narrow range around 20 cents per share. The company has until August 3, 2015, to regain compliance with the minimum bid price requirement, and may be eligible for additional time.

The Third Notice
On February 23, NASDAQ notified LPHI of three public interest concerns that constitute an additional basis for delisting the company's shares. The concerns, which relate to the Securities and Exchange Commission (SEC) lawsuit against LPHI and its top officers, are:
  • The jury findings that LPHI's executive officers participated in filing false and misleading financial statements with the SEC.
  • The history of egregious misconduct by LPHI's executive officers.
  • LPHI's failure to make prompt disclosure of material information, particularly the approximately $46 million in sanctions imposed on LPHI and certain of its executive officers by the December 2 Final Judgment Order, until the January 14 filing of the 10-Q report for the fiscal quarter ended November 30, 2014.
LPHI has requested a hearing about the delisting proceedings, and the hearing is scheduled for March 19, 2015. There can be no assurance the company will be successful in the appeal.

General Observations
This is my first detailed experience with the NASDAQ delisting procedure. It strikes me as a lengthy process. Also, it is unclear what arguments LPHI can make at the March 19 hearing that would persuade NASDAQ to refrain from delisting the company's shares.

I am offering a complimentary six-page PDF consisting of the three LPHI announcements about the delisting proceedings. On the first of the three, I have indicated the date of the announcement and shown the correct date on which LPHI received the NASDAQ letter. Send an e-mail to jmbelth@gmail.com and ask for the LPHI delisting package.

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