Life Partners Holdings was one of the biggest frauds in Texas history and will take more than a decade to unwind, while costing victims tens of millions of dollars, a bankruptcy trustee said.
The Waco-based company, which sold shares of life insurance policies, defrauded individual investors, many of whom were elderly, on an even wider scale than previously known, putting more than $1.4 billion at risk, trustee H. Thomas Moran II said in an 89-page report. Life Partners filed for bankruptcy last year after a federal judge imposed a $46 million judgment in a case brought by the Securities and Exchange Commission.
“The Life Partners fraud deserves a place in Texas history as one of the largest and longest-standing fraud schemes ever perpetrated in this state,” Moran said.
$41 millionAmount paid out in dividends and compensation to former Life Partners CEO Brian Pardo
Moran found that from 2007 to 2015 Life Partners received more than $1.3 billion in funds from investors while misrepresenting the life expectancies of the people covered by the insurance and paying almost $400 million in undisclosed fees and commissions to the people who sold the policies.
The SEC accused the company of “systematically and materially” misleading investors about life expectancies on policies.
Life Partners allegedly understated life expectancies in order to sell policies for more money. With such investments — known as life settlements, viaticals or death bonds — purchasers must pay premiums to keep the policies active until the insured dies and the death benefit is paid out. The sooner death comes, the more an investor stands to profit. Likewise, investors are willing to pay more for policies on terminally ill people expected to die soon.
In the report, Moran said an actuarial firm assessed the company’s investments and determined that it will take more than 10 years for most policyholders to die — showing just how far the company understated life expectancies.
“The additional time to policy maturity means there will be many more years of premium and servicing costs to pay, which will thereby increase the cost of the investment for thousands of Life Partners’ Investors,” Moran wrote.
Brian Pardo, who founded the company in 1991, profited while layering one deception upon another, Moran said, adding that Pardo, his family and others took millions of dollars through dividends, compensation and “lavish benefits.”
Last year, Moran filed a lawsuit seeking to recover about $41 million in dividends and past compensation paid to Pardo.
Brent Perry, a lawyer for Pardo, didn’t immediately return a call seeking comment on the report.