Life Partners Holdings, Inc. (LPHI) and its operating subsidiaries were participants in the secondary market for life insurance for many years. Now they are involved in bankruptcy proceedings. The trustee in the bankruptcy case is H. Thomas Moran II. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289.)
An "adversary proceeding" is a lawsuit filed within a bankruptcy case and assigned its own case number. In September and October 2015 Trustee Moran filed two adversary proceedings in the LPHI bankruptcy case. One is a complaint against Brian Pardo, the former chief executive officer of Life Partners. That complaint was later amended and nine plaintiffs were added. The other was a complaint against 30 licensees of Life Partners. The complaints are discussed here.
The Complaint against Pardo
On September 11, 2015, Trustee Moran filed a complaint against Pardo seeking $41 million for the benefit of the bankruptcy estate and investors allegedly victimized by actions of LPHI and its subsidiaries. The amount sought represents salaries, bonuses, dividends, and other personal remuneration received by Pardo. In No. 117 (September 21, 2015), I wrote about the complaint. (See Moran v. Pardo, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04079.)
The Amended Complaint against Pardo and Others
On October 5, 2015, Trustee Moran filed an amended complaint. The amount sought for the benefit of the bankruptcy estate is increased to $75 million, and the allegations are expanded. Nine defendants are added: Deborah Carr, daughter of Brian Pardo and former vice president of administration of Life Partners; Kurt Carr, husband of Deborah Carr and former vice president over policy acquisition of Life Partners; R. Scott Peden, former president, general counsel, and secretary of Life Partners; Linda Robinson, also known as Linda Robinson-Pardo; Pardo Family Holdings Ltd., a Gibraltar corporation; Pardo Family Trust, a trust domiciled in Gibraltar; Pardo Family Holdings US LLC, a Delaware limited liability company; Paget Holdings Inc., a Texas corporation; and Paget Holdings Ltd., a St. Vincent partnership.
The introductory section of the amended complaint contains a paragraph describing the allegedly "fraudulently inflated arbitrage." The paragraph reads:
The amended complaint has 12 counts. There are two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, one count of preferences, one count of fraud, one count of breach of fiduciary duty, one count of alter ego and/or sham to perpetrate a fraud, one count of unjust enrichment and constructive trust, one count of RICO [Racketeer Influenced and Corrupt Organizations Act], one count of disallowance of defendants' claims, and one count of equitable subordination.
Trustee Moran seeks return of funds from the defendants, actual damages, consequential damages, exemplary damages, pre-judgment interest, and post-judgment interest. He also seeks attorneys' fees and costs.
The Complaint against Licensees
On October 28, 2015, Trustee Moran filed a complaint against 30 licensees. He seeks recovery of what he alleges were excessive fees and commissions received from Life Partners. (See Moran v. Sundelius, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04087.)
The introductory section of the complaint against the licensees describes the alleged scheme to defraud investors. Here is the final paragraph of that section:
The licensee defendants, mostly from Texas, are the individuals and firms that received the largest amount of fees and commissions from 2008 through February 2015. The total of the fees and commissions received by the licensee defendants is $91.7 million, which is 56 percent of all the fees and commissions received during that period by the entire network of Life Partners licensees. Trustee Moran seeks to recover the $91.7 million for the benefit of the investors, as well as attorneys' fees and costs. Here is the list of licensee defendants, with amounts shown in millions of dollars:
General Observations
The trials in the two adversary proceedings are tentatively scheduled for March and April 2016, respectively, before the bankruptcy court judge. From what I have heard about the trials in adversary proceedings in bankruptcy cases, they are relatively brief and disposed of fairly quickly. Whether that will happen here remains to be seen.
Available Material
I am offering a complimentary 78-page PDF consisting of the 62-page text of Trustee Moran's amended complaint against Pardo and others, 14 pages of exhibits showing correspondence in 2010 between Pardo and two reporters for The Wall Street Journal, and a 2-page cover sheet. Send an e-mail to jmbelth@gmail.com and ask for the amended complaint in Moran v. Pardo.
I am also offering a complimentary 51-page PDF consisting of the 37-page text of Trustee Moran's complaint against the licensees, a 1-page exhibit showing the payments to the licensee defendants, and 13 pages of exhibits showing samples of licensee agreements. Send an e-mail to jmbelth@gmail.com and ask for the complaint in Moran v. Sundelius.
An "adversary proceeding" is a lawsuit filed within a bankruptcy case and assigned its own case number. In September and October 2015 Trustee Moran filed two adversary proceedings in the LPHI bankruptcy case. One is a complaint against Brian Pardo, the former chief executive officer of Life Partners. That complaint was later amended and nine plaintiffs were added. The other was a complaint against 30 licensees of Life Partners. The complaints are discussed here.
The Complaint against Pardo
On September 11, 2015, Trustee Moran filed a complaint against Pardo seeking $41 million for the benefit of the bankruptcy estate and investors allegedly victimized by actions of LPHI and its subsidiaries. The amount sought represents salaries, bonuses, dividends, and other personal remuneration received by Pardo. In No. 117 (September 21, 2015), I wrote about the complaint. (See Moran v. Pardo, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04079.)
The Amended Complaint against Pardo and Others
On October 5, 2015, Trustee Moran filed an amended complaint. The amount sought for the benefit of the bankruptcy estate is increased to $75 million, and the allegations are expanded. Nine defendants are added: Deborah Carr, daughter of Brian Pardo and former vice president of administration of Life Partners; Kurt Carr, husband of Deborah Carr and former vice president over policy acquisition of Life Partners; R. Scott Peden, former president, general counsel, and secretary of Life Partners; Linda Robinson, also known as Linda Robinson-Pardo; Pardo Family Holdings Ltd., a Gibraltar corporation; Pardo Family Trust, a trust domiciled in Gibraltar; Pardo Family Holdings US LLC, a Delaware limited liability company; Paget Holdings Inc., a Texas corporation; and Paget Holdings Ltd., a St. Vincent partnership.
The introductory section of the amended complaint contains a paragraph describing the allegedly "fraudulently inflated arbitrage." The paragraph reads:
It was a further part of the scheme to defraud the investors that, in or about January 1999, Pardo and the Defendant Executives hired a medical doctor, Donald Cassidy ("Cassidy"), with no actuarial experience or training, and no experience in rendering life expectancies, to prepare a life expectancy ("LE"), which Pardo and his team used to market the fractional interests to investors. Life Partners typically purchased those policies on which a significant discrepancy existed between the independent LE and the Cassidy LE, so that it could create a fraudulently inflated arbitrage between the low price (based on the longer LE) it paid for the policy and the higher price (based on the shorter Cassidy LE) at which it sold investment contracts to investors.The factual background section of the amended complaint mentions an article that appeared in The Wall Street Journal on December 21, 2010 about the activities of Life Partners. Exhibits to the amended complaint show e-mail correspondence between Pardo and Journal reporters Mark Maremont and Leslie Scism that preceded publication of the article.
The amended complaint has 12 counts. There are two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, one count of preferences, one count of fraud, one count of breach of fiduciary duty, one count of alter ego and/or sham to perpetrate a fraud, one count of unjust enrichment and constructive trust, one count of RICO [Racketeer Influenced and Corrupt Organizations Act], one count of disallowance of defendants' claims, and one count of equitable subordination.
Trustee Moran seeks return of funds from the defendants, actual damages, consequential damages, exemplary damages, pre-judgment interest, and post-judgment interest. He also seeks attorneys' fees and costs.
The Complaint against Licensees
On October 28, 2015, Trustee Moran filed a complaint against 30 licensees. He seeks recovery of what he alleges were excessive fees and commissions received from Life Partners. (See Moran v. Sundelius, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04087.)
The introductory section of the complaint against the licensees describes the alleged scheme to defraud investors. Here is the final paragraph of that section:
Life Partners and its Licensees perpetrated the fraud on the Investors by (1) accepting fees and commissions well in excess of industry norms and often exceeding the true value of the underlying life settlement policy; (2) misrepresenting the nature and accuracy of the life expectancy of the insured, including concealing the existence of longer estimated life expectancies; and (3) misrepresenting the likely returns on investments, among other things.The "factual background" section of the complaint describes, among other things, the procedural history of the bankruptcy case, how Life Partners acquired policies, contractual arrangements with investors, the network of licensees, and the undisclosed and allegedly exorbitant fees and commissions received by licensees. The complaint also alleges wrongful conduct by the licensees.
The licensee defendants, mostly from Texas, are the individuals and firms that received the largest amount of fees and commissions from 2008 through February 2015. The total of the fees and commissions received by the licensee defendants is $91.7 million, which is 56 percent of all the fees and commissions received during that period by the entire network of Life Partners licensees. Trustee Moran seeks to recover the $91.7 million for the benefit of the investors, as well as attorneys' fees and costs. Here is the list of licensee defendants, with amounts shown in millions of dollars:
James Sundelius (TX) 13.1The complaint has five counts. There are two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, and one count of claim for contribution from the licensee defendants for their participation in and facilitation in the scheme to defraud Investors.
B G & S Management Consultants (TX) 10.4
Life Insurance Settlements Inc (FL) 7.8
Life Settlement Exchange LLC (TX) 7.8
American Safe Retirements LLC (TX) 6.8
Advanced Settlements LLC (FL) 6.0
Tolleson Investments LLC (TX) 4.3
Fred A. Cowley (TX) 4.2
Security Reserve Financial Inc (TX) 3.0
Gallagher Financial Group (TX) 2.3
ASR Alternative Investments LP (TX) 2.2
JL Providers Inc (NY) 2.1
New Asset Advisors LLC (TX) 1.9
Frank W. Bice (TX) 1.9
Edward G. Burford Corp (TX) 1.9
Trinity Financial Services LLC (FL) 1.7
Sun Safety Inc (TX) 1.6
Abundant Income LLC (TX) 1.6
Life Distributors of America LLC (CA) 1.5
Faye Bagby (TX) 1.5
Ella Oliver (TX) 1.4
Lakeside Equity Partners Inc (TX) 1.3
Wealthstone Financial (TX) 1.1
Falco Group LLC (TX) 1.0
Alpha & Omega Global Risk Management LP (NV) 1.0
Rangetree Strategies LLC (CA) 0.9
Mark McKay (TX) 0.8
Kainos Asset Management (TX) 0.3
Life Strategies LLC (TX) 0.2
H. Peyton Inge (TX) 0.1
General Observations
The trials in the two adversary proceedings are tentatively scheduled for March and April 2016, respectively, before the bankruptcy court judge. From what I have heard about the trials in adversary proceedings in bankruptcy cases, they are relatively brief and disposed of fairly quickly. Whether that will happen here remains to be seen.
Available Material
I am offering a complimentary 78-page PDF consisting of the 62-page text of Trustee Moran's amended complaint against Pardo and others, 14 pages of exhibits showing correspondence in 2010 between Pardo and two reporters for The Wall Street Journal, and a 2-page cover sheet. Send an e-mail to jmbelth@gmail.com and ask for the amended complaint in Moran v. Pardo.
I am also offering a complimentary 51-page PDF consisting of the 37-page text of Trustee Moran's complaint against the licensees, a 1-page exhibit showing the payments to the licensee defendants, and 13 pages of exhibits showing samples of licensee agreements. Send an e-mail to jmbelth@gmail.com and ask for the complaint in Moran v. Sundelius.
===================================
Email: jmbelth@gmail.com
Blog: www.josephmbelth.com