I don't understand why the stock is still at the current price. Either I am very wrong about 4Q sales, or the market is assuming a sales drop of less than 50%, with earnings rising thereafter. At the moment the market disagrees, but I just don't see a one-trick pony stock rebounding when they are in a Catch-22 situation:
1) If the stock fraud class action is successful, the state legislature will be compelled to to SOMETHING about the regulation issue in Texas. If the stock fraud class action is unsuccessful, the books will still have been opened in deposition (not to mention the TDI statistics obtained under the FOIA) and potential investors will know exactly how far off the returns are. Potential investors will now be painfully aware of the total in fees and commissions that go into each deal. I imagine at that point LPI will have to come up with a more friendly (less costly) product for the fractional investors. This better product will earn less for LPI and will perhaps have lower fees for the licensees, making it less attractive for them to sell.
2) If the good judge (Walter Smith) recuses himself, the newspapers will print the reason why (he reportedly has been on Pardo's yacht). If he does not recuse himself, the plaintiff attorneys will cry foul and the investing public will think something funny is going on in Waco. Either way, LPI looks bad.
3) If LPI changes from Dr. Cassidy to another LE provider, they are admitting that the previous investors have had LEs that don't reflect reality. If they do this, plaintiff attorneys will take note that the other providers (Fasano, EMSI, AVS, 21st, Midwest) have potentially embarrassing records of the LEs they provided to the sellers of the very policies LPI bought before reselling them fractional investors. If LPI keeps Dr. Cassidy, their sales will (my guess) get killed because the licensees and the investing public know the LEs are so far off (from the WSJ and TLSR articles).
4) If the licensees keep selling the product using the current sales presentations we see on line, they could be on the hook for potential liability (promising double digit returns, claiming there is no risk, etc.). If they continue to take each presentation off the Internet every time it is exposed here or elsewhere, the plaintiff attorneys for the RICO consumer lawsuits will use this as "evidence" of a conspiracy that involves the entire enterprise.
5) Mr. Pardo can't explain the Bloomberg interviews without getting himself into hot water. He advertised "well above market" and double digit returns. He said enough money was put into escrow to cover the premiums. Mr. Peden said similar things in an interview that was published on Seeking Alpha. They can always say they didn't mean it, but as corporate officers they should know better. Besides, they had ample time to make corrections. They can say the LPI sales documents state otherwise, but that argument may not fly because they "advertised" the investments in a public forum, and there is no getting around that. I imagine the sales people, if asked by regulators or attorneys in deposition, will justify their own actions by stating "We only did what the corporate officers did!" and "They know about our presentations!"
6) If the recent remarks from master licensees regarding the use of another LE provider (21st), the decline in sales, and other important issues are correct, LPHI will be faced with having to explain why they did not provide this material information to the investing public. If the various master licensee remarks are incorrect, LPI will have to explain why they did not refute the claims. Either way, LPI may have to explain why they never mentioned the SEC investigation (or whatever they want to call it) that started months before it was reported in a press release.
7) If any of the law suits move forward, LPI will be asked why they allowed advertisements to state their escrow agent is "independent." If they say Dunnam & Dunnam (Advance Trust) is not independent, they admit to lying. If they claim they are independent, LPI has to explain the building Pardo had named after Vance Dunnam, the political contributions, the stock owned by Jim Dunnam, the contracts that allow for splitting of the interest on funds (before they were invested), etc.
8) If the regulation suit moves forward, LPI must explain why the Third Prong of Howey does not apply. I imagine each investor as part of the class action that had a premium forwarded policy will state they relied solely upon the efforts of another (LPI) for: 1)locating the policy, 2) valuing the policy, 3) getting them out of the policy when the LE didn't accurately predict investor expectations, 4) providing the premium forwarding, and 5) providing the eventual resale of the policy. This could prove to be different than what the court saw in SEC v. LPI and Brian D Pardo because of what LPI is now doing on the "back end" of the deal. If the regulation suit does not move forward, the Texas legislature will look foolish for not considering these investments "securities" like so many other states.
9) If LPI comes up with a better product using a Fasano (for example) LE, previous investors will believe they got a raw deal and will not reinvest. If they do not develop a better product, they have to explain the past problems of using a LE provider (Dr. Cassidy) that does not check his estimates for accuracy to prospective investors of fractional investments. As we all know, "Yes, but..." products are hard to sell.
10) If E&Y gives an unqualified opinion , they will likely be grilled by plaintiff attorneys about the accounting for the Colorado repurchases, the premium forwarding, the resales, projected earnings, etc. It could prove a bit embarrassing. If E&Y suggests restating prior earnings, the plaintiff attorneys will find that interesting. If they offer a qualified opinion...well you know what that means.
If only one of the corporate officer's names in this Catch-22 were "Yossarian."
Yossarian: Is Orr crazy? Dr. 'Doc' Daneeka: Of course he is. He has to be crazy to keep flying after all his close calls he's had. Yossarian: Why can't you ground him? Dr. 'Doc' Daneeka: I can, but first he has to ask me. Yossarian: That's all he's gotta do to be grounded? Dr. 'Doc' Daneeka: That's all. Yossarian: Then you can ground him? Dr. 'Doc' Daneeka: No. Then I cannot ground him. Yossarian: Aah! Dr. 'Doc' Daneeka: There's a CATCH? Yossarian: A catch? Dr. 'Doc' Daneeka: Sure. Catch-22. Anyone who wants to get out of combat isn't really crazy, so I can't ground him. Yossarian: Ok, let me see if I've got this straight. In order to be grounded, I've got to be crazy. And I must be crazy to keep flying. But if I ask to be grounded, that means I'm not crazy anymore, and I have to keep flying. Dr. 'Doc' Daneeka: You got it, that's Catch-22. Yossarian: Whoo... That's some catch, that Catch-22. Dr. 'Doc' Daneeka: It's the best there is.