Bankruptcy trustee sues ex-Life Partners CEO for $41 million

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

In a sharply worded lawsuit filed Sept. 11, Trustee Thomas H. Moran II detailed a scheme in which Pardo and Waco-based Life Partners defrauded investors by selling them fractional interests in life insurance policies based on bogus figures that underestimated how long the policyholder 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, 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 Life Partners had made false and misleading filings with the Securities and Exchange Commission.

During the trial, the SEC alleged that investors were misled about the life expectancies 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 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 dividend payouts, 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 says that Life Partners paid Pardo $5.68 million in compensation from 2008 to 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 says. “Investors were misled at every turn.”

This story was originally published September 17, 2015 at 11:08 AM with the headline "Bankruptcy trustee sues ex-Life Partners CEO for $$41 million."