Judge Blocks Life Partners From Paying Dividends, Removing Records

Aug. 18--A state district judge on Friday declined to grant state officials the right to seize Life Partners Holdings but issued a temporary restraining order that bars the removal of records and blocks the payment of dividends.

In her order, Judge Orlinda Naranjo said it's likely that the state's claims that the Waco life settlement company violated state securities law by "committing fraud" will prevail -- an image-shattering assertion that the publicly traded corporation must now disclose to prospective investors.

Shares in the Nasdaq-traded company (ticker: LPHI) skidded downward 17 percent to close under $2.

CEO Brian Pardo and his management team can continue running the company for now, as the judge put off a decision on whether to appoint a receiver. Naranjo set an Aug. 30 date for an evidentiary hearing in Austin, where the 201st District Court is based.

The action will prevent the payment of $1.8 million in dividends, announced this week, half of which would have been paid to Pardo and his Gibraltar-based family trust.

"In order to protect investors, the state moved swiftly to secure much-needed protections from the court," Texas Attorney General Greg Abbott said in a news release. "Given the firm's precarious financial state, it was extremely important that safeguards be imposed to protect investors."

Earlier, Pardo called "spurious" the claims of fraud leveled by Abbott and the State Securities Board.

On Thursday, Abbott requested the appointment of a receiver because the company could collapse in two months. Pardo called that claim "outlandish and irresponsible."

"We deny the allegations in the strongest possible terms," Pardo said in a company statement, refuting allegations that buying life insurance policies from elderly people and selling fractional pieces to investors meant that the company was trading in securities.

He said Life Partners had proved its point in court more than once. Moreover, he refuted the state's claim that policyholders' life expectancy projections given to investors were rigged.

"First, the Federal D.C. Circuit Court of Appeals and Texas state courts have reviewed our life settlements and ruled that they are not securities," Pardo said. "Secondly, we did not misrepresent our life settlements. The life expectancy estimates we provided to purchasers were made by a third party in good faith."

The Securities and Exchange Commission, alleging insider trading by company executives, said in January that Reno oncologist Don Cassidy, with no actuarial training prepared the company's life expectancy reports, which it said proved wildly inaccurate.

On Friday, Naranjo specifically ordered Cassidy not to destroy any records related to Life Partners.

Pardo hotly contested the state's claim that the company is on the brink of collapse.

"The allegation that we are nearing insolvency is spurious," he said. "It is speculation drawn from innuendo.

"The facts are that we currently have more than $10 million in cash on hand, $45 million in assets, and virtually no debt," he went on.

Referring to a federal insider trading suit, Pardo said, "Our business has largely stabilized after the blow we suffered with the SEC enforcement action."

He said Life Partners has liquidated "nonstrategic" assets to raise $1.4 million and has $1 million more in net income.

Barry Shlachter,

817-390-7718

Twitter: @bshlachter

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