The Finding of Fraud
A major section of the declaration is the "Initial Findings of Trustee's Investigation." The Trustee said: "As a result of my investigation to date, I have concluded that Life Partners devised and executed a wide-ranging scheme to defraud its Investors." The Trustee also said the fraud "took place over the course of a number of years" and "occurred in a number of ways, including, but not limited to" these fourteen activities:
- Use of artificially shortened life expectancies in the sale of its so-called "fractional investments";
- Material misrepresentation of the returns Investors could expect;
- Misrepresentations regarding whether policies had lapsed and resale of lapsed interests;
- Use of so-called "escrow companies," including one with the word "trust" in its name, as instrumentalities of, and cover for, the fraudulent scheme;
- Charging massive, undisclosed fees and commissions, the total of which, in many cases, exceeded the purchase price of the policies themselves;
- Repeated misrepresentation of Life Partners' business practices in order to maneuver around securities regulatory regimes;
- Egregious and continuous self dealing by insiders;
- Failure to disclose CSV [cash surrender values];
- Forcing Investors to abandon Contract Provisions, many of which were then resold for personal gain;
- Systematic financial mismanagement, including improper payment of dividends;
- Faulty and inconsistent record keeping, including with respect to the purported "escrow" companies and "trusts";
- Commingling and unauthorized use of investor monies;
- The offer and sale of unregistered securities; and
- Implying the investment structure was a permissible investment for an IRA [individual retirement account], and failing to disclose the risks if it was not.
A major portion of the Trustee's declaration is devoted to detailed descriptions of the above elements of the "wide-ranging" fraud. The findings go far beyond the allegations by the Securities and Exchange Commission that led to what I referred to in No. 75 (posted December 10, 2014) as the "death sentence" imposed on Life Partners by Senior U.S. District Court Judge James R. Nowlin. The findings make clear why Life Partners and its senior officers fought so hard to continue operating the company during the bankruptcy proceedings and to oppose the appointment of an independent trustee who would have total access to the company's records of its activities.
The Trustee's Plans
At the same time, the Trustee filed eleven emergency motions. They include such items as joint administration of the Life Partners companies, payment of employee wages, payment of property and liability insurance premiums, payment for utilities, and payment of taxes. There is also a motion for authority to change the beneficiary designations on the policies that make up the fractional interests in the life settlements sold by Life Partners so as to eliminate the escrow companies and the expenses associated with the escrow companies. There is also a motion to approve a plan for paying premiums on those policies so as to make sure that those policies remain in force.
In earlier postings I expressed the opinion that the Trustee and the bankruptcy court judge would do everything possible to protect the owners of fractional interests in the life settlements sold by Life Partners. I am asking the Trustee a question about his plans for those policies, and I will report his answer.
Availability of the Declaration
Meanwhile, I am offering a complimentary 39-page PDF containing the Trustee's declaration. E-mail firstname.lastname@example.org and ask for the Trustee's May 20 declaration in the Life Partners bankruptcy case.