Life Partners Holdings, Inc. (LPHI), together with its operating subsidiaries, was an intermediary in the secondary market for life insurance. On January 20, 2015, LPHI (Waco, TX) filed for bankruptcy protection under Chapter 11 of the federal bankruptcy law. The case was assigned to U.S. Bankruptcy Court Judge Russell F. Nelms. On March 13, 2015, the U.S. Trustee appointed H. Thomas Moran II the Chapter 11 Trustee in the LPHI case, and Judge Nelms affirmed the appointment six days later. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289.)
I wrote extensively about LPHI in The Insurance Forum, and later I posted numerous blog items before and after the bankruptcy filing. Here I discuss a new dimension of the LPHI bankruptcy case. On September 11, 2015, Trustee Moran filed a 52-page complaint against Brian D. Pardo, the former chief executive officer of LPHI. (See Moran v. Pardo, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04079.)
The Adversary Proceeding
Trustee Moran's complaint is called an "adversary proceeding," which is a lawsuit filed within a bankruptcy case and assigned its own case number in the bankruptcy court. In this instance, a major purpose of the adversary proceeding is to recover, for the benefit of the bankruptcy estate, property that Trustee Moran alleges was fraudulently transferred to Pardo prior to the bankruptcy filing.
The cover sheet of the complaint mentions a "demand" of $41 million. That figure appears at two places in the complaint, but other figures also appear. Therefore, I asked Trustee Moran to clarify what the figure represents. In response he said:
Trustee Moran's Complaint
The introductory section of Trustee Moran's complaint briefly describes the "scheme to defraud" and the "marketing of fraudulent life expectancy estimates." The factual background section contains three subsections, one of which is a subsection about such matters as purposeful reduction of life expectancies to lure investors and inflate profits, transfers to an insider company, failure to disclose policy lapses, exorbitant and undisclosed commissions and fees, and monies paid to Pardo.
The complaint contains 12 counts: two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, and one count each of preferences, fraud, breach of fiduciary duty, sham to perpetrate a fraud, unjust enrichment, disallowance of Pardo's claims, violation of the federal Racketeer Influenced and Corrupt Organizations Act of 1970, and equitable subordination. Trustee Moran also seeks attorneys' fees.
General Observations
Trustee Moran's complaint contains an elaborate discussion of the arbitrage involving two life expectancy estimates. One estimate, on which Life Partners relied in deciding what it would pay to acquire a policy, was based on a realistic estimate provided by one of the prominent firms that provide life expectancy estimates. The second estimate, invariably much shorter, was used in pricing fractional interests sold to investors. The shorter estimates were provided to Life Partners by Donald T. Cassidy, MD (Reno, NV), an internal medicine practitioner with no experience or training in the preparation of life expectancy estimates.
Trustee Moran's complaint relies heavily on a declaration he filed in the bankruptcy case on May 20. I described the declaration in No. 102 posted May 26, and offered the declaration to readers at the time. However, the recent complaint goes beyond the declaration in some respects, and I think it is stronger than the declaration.
In an adversary proceeding, trial is set routinely at the time of filing. On September 14, the bankruptcy court clerk set the trial for March 2016 before Judge Nelms. Under federal bankruptcy rules, the parties are to confer within 30 days, consider the claims and defenses, consider the possibilities for a prompt settlement, and submit a proposed schedule. In the absence of a settlement, a brief bench trial to resolve the complaint seems likely.
Available Material
I am offering a complimentary 52-page PDF containing Trustee Moran's complaint. E-mail jmbelth@gmail.com and ask for Trustee Moran's September 11 complaint against Pardo.
I wrote extensively about LPHI in The Insurance Forum, and later I posted numerous blog items before and after the bankruptcy filing. Here I discuss a new dimension of the LPHI bankruptcy case. On September 11, 2015, Trustee Moran filed a 52-page complaint against Brian D. Pardo, the former chief executive officer of LPHI. (See Moran v. Pardo, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04079.)
The Adversary Proceeding
Trustee Moran's complaint is called an "adversary proceeding," which is a lawsuit filed within a bankruptcy case and assigned its own case number in the bankruptcy court. In this instance, a major purpose of the adversary proceeding is to recover, for the benefit of the bankruptcy estate, property that Trustee Moran alleges was fraudulently transferred to Pardo prior to the bankruptcy filing.
The cover sheet of the complaint mentions a "demand" of $41 million. That figure appears at two places in the complaint, but other figures also appear. Therefore, I asked Trustee Moran to clarify what the figure represents. In response he said:
The $41 million is the total of salaries, bonuses, and other compensation ($5.8 million), dividends ($34 million or more), and other personal remuneration.Trustee Moran is represented by three attorneys in the Dallas firm of Thompson & Knight LLP. Pardo is representing himself.
Trustee Moran's Complaint
The introductory section of Trustee Moran's complaint briefly describes the "scheme to defraud" and the "marketing of fraudulent life expectancy estimates." The factual background section contains three subsections, one of which is a subsection about such matters as purposeful reduction of life expectancies to lure investors and inflate profits, transfers to an insider company, failure to disclose policy lapses, exorbitant and undisclosed commissions and fees, and monies paid to Pardo.
The complaint contains 12 counts: two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, and one count each of preferences, fraud, breach of fiduciary duty, sham to perpetrate a fraud, unjust enrichment, disallowance of Pardo's claims, violation of the federal Racketeer Influenced and Corrupt Organizations Act of 1970, and equitable subordination. Trustee Moran also seeks attorneys' fees.
General Observations
Trustee Moran's complaint contains an elaborate discussion of the arbitrage involving two life expectancy estimates. One estimate, on which Life Partners relied in deciding what it would pay to acquire a policy, was based on a realistic estimate provided by one of the prominent firms that provide life expectancy estimates. The second estimate, invariably much shorter, was used in pricing fractional interests sold to investors. The shorter estimates were provided to Life Partners by Donald T. Cassidy, MD (Reno, NV), an internal medicine practitioner with no experience or training in the preparation of life expectancy estimates.
Trustee Moran's complaint relies heavily on a declaration he filed in the bankruptcy case on May 20. I described the declaration in No. 102 posted May 26, and offered the declaration to readers at the time. However, the recent complaint goes beyond the declaration in some respects, and I think it is stronger than the declaration.
In an adversary proceeding, trial is set routinely at the time of filing. On September 14, the bankruptcy court clerk set the trial for March 2016 before Judge Nelms. Under federal bankruptcy rules, the parties are to confer within 30 days, consider the claims and defenses, consider the possibilities for a prompt settlement, and submit a proposed schedule. In the absence of a settlement, a brief bench trial to resolve the complaint seems likely.
Available Material
I am offering a complimentary 52-page PDF containing Trustee Moran's complaint. E-mail jmbelth@gmail.com and ask for Trustee Moran's September 11 complaint against Pardo.
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Email: jmbelth@gmail.com
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