Bankruptcy Trustee Sues Former Life Partners CEO For $41M

Sept. 17--The court-appointed trustee in the Life Partners bankruptcy case is going after former long-time CEO Brian Pardo, seeking to recover about $41 million in dividend payments and past compensation to pay off creditors.

In a sharply worded lawsuit filed on Sept. 11, trustee Thomas H. Moran II detailed a scheme by which Pardo and Waco-based Life Partners defrauded investors by selling fractional interests in life insurance policies to investors based on bogus life-expectancy estimates that underestimated how long the policy holder would live.

"Pardo used the Life Partners business to line his and his family's pockets," states the complaint, filed in U.S. Bankruptcy Court in Fort Worth. "Because over 50 percent of the stock of LPHI is owned by the Pardo Family Holdings Ltd., dividends and profits from the business -- which were derived almost entirely from undisclosed fees paid to Life Partners when contract positions in the proceeds of life insurance policies were sold -- resulted in tens of millions of dollars flowing to Pardo and his family during the course of this fraudulent scheme."

In December 2014, U.S. District Judge James R. Nowlin in Austin ordered that Pardo pay a $6.1 million civil penalty, and that the company pay $37.7 million, after a jury found that the company had made false and misleading filings with the Securities and Exchange Commission.

"In Ponzi-like fashion, Pardo and Life Partners misrepresented the value of investments sold," the complaint states. "Investors were misled at every turn."

During the trial, the SEC alleged that investors were misled about the life expectancy of elderly people whose death benefits were bought and sold by Life Partners on the secondary insurance market. The jury returned a split verdict in the case in February 2014, ruling that the company did not commit fraud and that its top officers had not engaged in insider trading.

Moran's complaint states that after Nowlin announced his judgment decision, Life Partners issued more than $2.7 million in three separate dividend payouts, and then filed for bankruptcy protection in January "as an end-run around the District Court's jurisdiction, to avoid the appointment of a receiver."

Bankruptcy Judge Russell Nelms ousted the company's managers in March and appointed Moran as trustee. Pardo had been CEO since the company's inception in 1991.

The complaint states that Life Partners paid Pardo $5.68 million in compensation from 2008-2014, and that he received more than $35 million in dividends since 2002.

"In Ponzi-like fashion, Pardo and Life Partners misrepresented the value of investments sold," the complaint states. "Investors were misled at every turn."

Steve Kaskovich: 817-390-7773, @stevekasko

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