InterDigital Inc (IDCC)

[olddog967]

Paulee: Life Partners, the company filing suit apparently has it's own troubles with fraud charges.


Securities Fraud Suit Against Life Partners Revived

Share us on: Twitter Facebook LinkedIn By Jess Davis 0 Comments

Law360, Dallas (February 06, 2014, 7:27 PM ET) -- A Texas appeals court revived the state's allegations that Life Partners Inc. violated the Texas Securities Act by selling fraudulent, unregistered fractional interests in life insurance policies, overturning Thursday a trial judge’s decision that the life settlements qualifed as securities.
In a brief opinion, the Third Court of Appeals said it was following the reasoning of an August decision from the Fifth Court of Appeals that held life settlements should be treated as investment contracts, not insurance contracts, and as such are subject to compliance with the Texas Securities Act.

Texas sued Life Partners and its publicly traded Life Partners Holdings Inc. in August 2012, seeking to appoint a receiver for the companies and to secure an injunction that would bar them from continuing to sell unregistered securities, but a trial judge denied the request.

"We are disappointed by the court-of-appeals decision, and we intend to timely pursue appellate review by the Texas Supreme Court,” Life Partners attorney Douglas Alexander of Alexander Dubose Jefferson & Townsend LLP said in a statement Thursday. “Two appellate courts have previously ruled that LPI's life settlements are not securities, and we continue to believe that those are the better-reasoned authorities."

A 2004 decision from the Tenth Court of Appeals in another suit against Life Partners followed a nonbinding opinion from the D.C. Circuit determining the life settlements were not subject to the Texas Securities Act.

The state argued the D.C. Circuit wrongly interpreted part of a test laid out in the U.S. Supreme Court's seminal SEC v. W.J. Howey Co. decision to support a finding Life Partners made only ministerial efforts after it bought life insurance policies that became the basis of its life settlements, rather than adding to the profits of an investment.

Instead, Texas argued that Life Partners has significant control over the management of the life insurance policies and that its actions post-purchase, such as estimating life expectancy, can and do directly affect investor returns, rather than serving as ministerial functions.

“We are pleased that the Third Court of Appeals agreed with the state that Life Partners’ investments are securities under Texas law,” attorney general spokeswoman Lauren Bean said in a statement Thursday. “The defendants are attempting to evade state oversight by arguing that its products are not securities, when in reality, Life Partners has been selling securities in violation of the Texas Securities Act. We will continue fighting to protect those who have fallen victim to Life Partners’ scheme.”

Texas is claiming the companies were “perpetuating a massive fraud upon the investing public” by advertising materially short life expectancies for the policyholders that would result in a larger payout to the investor, based on unreliable evidence.

On Monday, a federal jury in Austin, Texas, returned a mixed verdict in a U.S. Securities and Exchange Commission lawsuit accusing Life Partners Holdings and two of its top executives of artificially inflating stock prices, finding they committed revenue recognition fraud and violated accounting laws, but clearing them of insider trading and securities fraud offenses.

After deliberations, the panel exonerated the company, CEO Brian Pardo and general counsel and Secretary R. Scott Peden of eight of the 11 counts the SEC brought over their alleged violations in connection with a scheme to entice investors by understating the life expectancies of policyholders whose insurance policies Life Partners sold.

Life Partners is also facing a fraud and negligence suit in Dallas County from more than 100 investors who say the insurer should pay back premiums they overpaid after a doctor who Life had retained made grossly inaccurate life expectancy predictions, and pay punitive damages.

Life Partners is represented by Elizabeth L. Yingling, Laura J. O'Rourke, Will R. Daugherty and Meghan E. George of Baker & McKenzie LLP and Douglas W. Alexander of Alexander Dubose Jefferson & Townsend LLP.

The case is Texas v. Life Partners Holdings Inc. et al., case number 03-13-00195-CV, in the Third Court of Appeals of the State of Texas.

--Additional reporting by Dan Ivers. Editing by Edrienne Su.

http://www.law360.com/articles/507677/texas-securities-fraud-suit-against-life-partners-revived