SEC Says Life Settlements Broker Misrepresented Life Expectancies
Life Partners Holdings, Inc., along with Brian D. Pardo, CEO, and R. Scott Peden, General Counel, have been issued a Wells notice from the Securities and Exchange Commission (SEC) notifying them that the SEC intends to initiate a civil enforcement action against them for allegedly misrepresenting the life expectancies of insured customers whose life insurance policies it sold to retail investors, as reported in the Wall Street Journal. Life Partners is a major seller of “life settlements”, who brokers life insurance policies to investors who buy shares of another person’s life insurance policies when the insured no longer needs or want them.
According to the article, the life expectancy misrepresentations are considered material for investors in deciding on whether or not to invest. For example, the shorter the estimated life expectancy of the insured, the shorter the investor’s holding period and the lower the costs , the more investors could stand to make on the deal. A recent one page article in the Wall Street Journal had questioned the accuracy of the company’s life expectancy estimates, said that many of the insured people were exceeding those estimates and investors were unlikely to receive the 10% to 15% annual returns the company had told them they could expect.
The calculations of the life expectancies were reportedly done by a Reno, Nevada doctor who was paid over $1.3 million for part time work since 2002. Based on these calculations, Life Partners made huge profits buying policies on the cheap based on expectations that the insured would live a long time and then peddling them to investors at a large mark up based on a much shorter life expectancy.