Wednesday, December 17, 2014

No. 77: Life Partners—Latest Developments Relating to the Court-Ordered Death Sentence

Life Partners Holdings, Inc. (NYSE:LPHI) is a participant in the secondary market for life insurance. In No. 75 posted December 10, I said Senior U.S. District Court Judge James R. Nowlin handed down a "final judgment order" on December 2 in a lawsuit filed by the Securities and Exchange Commission (SEC) against LPHI and its two top officers: Brian D. Pardo, chief executive officer; and R. Scott Peden, general counsel. The order requires LPHI to pay the SEC $38.7 million (more than twice LPHI's total assets!) by December 16. I called the financial dimensions of the order a death sentence for LPHI. (SEC v. LPHI, U.S. District Court, Western District of Texas, Case No. 1:12-cv-33.)

Developments on December 10
On December 10, three things happened. First, Dana Livingston, a partner in the Austin firm of Alexander Dubose Jefferson & Townsend, appeared before the court as an attorney for LPHI.

Second, the defendants filed an "opposed emergency motion to extend stay of enforcement of the judgment." The motion is "opposed" because "the SEC is not willing to agree to any extension of the automatic stay [until December 16] at this time." The motion says the defendants intend to file by December 30 their post-judgment motions, such as motions to alter or amend the judgment and a motion for a new trial.

Third, Judge Nowlin granted LPHI's motion. He stayed execution of the judgment and any proceedings to enforce the judgment for an additional 14 days, until December 30.

Later Developments
On December 12, James Craig Orr, Jr., a partner in the Dallas firm of Heygood Orr & Pearson, sent a letter to Judge Nowlin on behalf of investors in LPHI's life settlements. Orr asks the judge to consider reducing the judgment against LPHI because the amount is far more than what LPHI possesses, and because LPHI would not be able to perform the ministerial services needed to protect the investors' funds.

On December 15, the court issued a deficiency notice because Orr's filing is in the form of a letter rather than a motion. The court asks Orr to refile immediately in the form of a motion.

LPHI's Nondisclosure

At the close of business on December 16, there is no press release on the LPHI website about the December 2 order. Also, there is no 8-K (material event) report on the SEC website, although such a report is supposed to be filed within four business days after the event.

LPHI's nondisclosure is not unusual. As I reported in No. 35 posted March 10, 2014, selective disclosure—prompt disclosure of good news and delayed disclosure of bad news—is standard practice at LPHI.

LPHI's Share Prices
Despite LPHI's nondisclosure, and despite the absence of news stories since shortly after the order, word got around. LPHI's share price declined sharply after the order—from a closing price of $1.43 on the day of the order to $1.10 the next day. Closing prices were $1.06 on December 4, $1.00 on December 11, $0.94 on December 12, $0.90 on December 15, and $0.78 on December 16.

Ministerial Fees
Meanwhile, in No. 74 posted November 25, I discussed LPHI's decision to begin charging its investors fees—through its newly formed subsidiary, LPI Financial Services, Inc.—for ministerial services relating to life settlements. On November 14, one month after the due date of the first annual fee payments, LPI sent investors a "past due" notice that reads:
PAST DUE. Please Disregard if Paid. Payment is due upon receipt. Delinquent payments will be subject to interest at the maximum rate permitted under law as well as reporting to credit bureaus. Failure or refusal may result in termination of access to platform services.
Available Documents
I am offering a complimentary 13-page PDF showing LPHI's seven-page motion for a stay, LPHI's one-page proposed order, the judge's one-page order granting a stay until December 30, Orr's three-page December 12 letter to the judge, and the court's one-page December 15 deficiency notice. In No. 75, I offered a complimentary 21-page PDF showing Judge Nowlin's December 2 final order; this PDF is still available. Send an e-mail to and ask for the LPHI motion for stay, or the final order in the SEC lawsuit against LPHI, or both.