Life Partners blames SEC suit, critical articles for hefty losses [Fort Worth Star-Telegram]

May 29--The corporate parent of Life Partners, the troubled Waco trader of insurance death benefits, on Wednesday blamed fallout from a federal securities case and a general decline in the life settlement market for its $2.9 million loss in the past year and a steep drop in its stock price.

The Securities and Exchange Commission filed a lawsuit in January 2012, alleging that Life Partners Holding misled investors by using a Nevada doctor with no actuarial training for creating life expectancy estimates of policy sellers. Many purportedly outlived predictions on which the firm's investors relied.

Soon after, several class-action lawsuits were lodged by both shareholders and buyers of policy fractions sold by Life Partners, including one in Tarrant County, it acknowledged in its annual report to shareholders.

The fiscal 2013 loss was less than the previous year's $3.1 million in red ink. Because of fewer investors, the number of policies bought and resold in fractions dropped to 35, compared with 62 in fiscal 2012 and 166 in the previous fiscal year, when it was profitable, the companyt said.

It explained the poor performance by saying that its sales network and purchaser base were "damaged by the SEC investigation and subsequent lawsuit, the filing of multiple private suits, and publication of news articles criticizing our operations."

Another contributing factor was the substantial decline in life settlement transactions, from an estimated $7.6 billion in 2009 to an estimated $1.2 billion in calendar 2011, although it rose to $2 billion the next year.

Life Partners said that since fiscal 2012 it no longer relies solely on Dr. Donald Cassidy, a Reno oncologist, for life expectancy estimates, having engaged an actuarial firm, 21st Services. It explained that Cassidy's much-criticized estimates involved people with HIV who lived far longer thanks to medical advances.

The firm said that the industry as a whole had underestimated life expectancies, citing a report that insurance giant AIG's $621 million impairment on its life settlement portfolio -- $309 million in 2012 and $185 million in 2011 -- was due to revised estimates.

The annual report said the cost of defending itself against the SEC and private litigation has become Life Partner's single biggest administrative expense --$3,713,536 in fiscal 2013.

The stock has dropped more than 33 percent since the SEC sued. It closed Wednesday at $3.49, down 2.5 percent. The report noted that founding CEO Brian Pardo continues to control 50 percent of the stock.

The report gave an analysis of the death benefits industry, saying the biggest player held a 19 percent market share, up from 16 percent, while the next-largest competitor had 14.5 percent and two others had 10 percent each. Life Partners said it had about a 5 percent share in calendar 2012, the same as the year before.

"Whether we can restore our transaction volumes will depend largely on our success in restoring trust and confidence within our licensee network and purchaser base and in resolving the SEC suit," it said. "We believe the news articles portrayed us in a false light, and we have worked with our licensees and clients to restore lost confidence and rebut the charges in the articles."

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