Because it isn't "material" (lol). Seriously, Collette couldn't hold a job anywhere else, and this was her last option. She isn't qualified to determine public company accounting let alone run a company. The problem is fraud. If there is any, she will try to hide it hoping that another job exists somewhere down the highway.
The" Pasadena Pumper" (Who thought of that first?) will pump the stock before he figures out what the duty is to the shareholders (those besides Pardo who hold shares).
In an amicus brief design to keep competition out of TX co-authored by Peden, it was argued that Life Partners did not engage in "post transaction entrepreneurial effort" and, therefore, should not be subject to registration. Using Peden's own words, does the following constitute "post transaction entrepreneurial effort" or not?
- Life Partners charging tens of thousands of fractional interests a "platform management fee," and then having them forfeit policies when this fee was not paid. Is the sending out of notices, taking over policies, having the titles changed, and reselling the policies taken over a "post transaction entrepreneurial effort?"
- Is a related party (Paget Holdings) that purchases hundreds of fractional interests every month while generating massive fees for the company that allows the continuation of the salaries paid to Pardo and relatives of Pardo a "post transaction entrepreneurial effort?"
Unlike Mr. Peden I am not a lawyer. However, if I read Mr. Peden's amicus brief correctly, it seems he believed Life Partners could avoid Howey and registration by not being associated with "post transaction entrepreneurial effort." Well, does the above constitute thousands of examples of "post transaction entrepreneurial effort" or not? Perhaps an attorney could chime in.
PJ, When LPI buys back policies it is engaging in post transaction entrepreneurial effort, which brings the Third Prong of Howey into play (the investments become securities). This is disaster because registration would stop this scheme in its tracks. That is why Paget was formed, as a weak attempt to keep Howey away. Will this work since the number of resales is going through the roof, and all of this is related party transactions with ownership flowing from the family trust?
typicon2002, You are very, very wrong and you have no idea why: The Third Prong of Howey. The main thing that keeps scheme or scams like this going is the lack of registration (no SEC). Post transaction entrepreneurial effort after the sale brings Howey into play. With registration, there is full disclosure and with full disclosure none of this garbage can be sold. Why not?
1) Registration means full disclosure, which demands past returns shown to prospective investors using standardized performance presentation standards, which no marketer of fractional investments in life settlements would dare use (you can take the IRR numbers you fabricate and no prospective investor will ever see it in writing). All those related party transactions and lawsuits would have to be shown to prospective investors, who presumably would never buy the product.
2) Registration means this stuff could only be sold through registered reps and not hairdressers, plumbers, etc. with no licensure.
3) Registration means the advertising and sales presentations used to hawk this nonsense would have to change.
4) Registration would apply to the resales, which means Life Partners would be out of business by now since their only source of income is from resales to a related party.
There is a lot of effort from LPI going on after the sale, and some people think the Howey test has been met.
BTW, show me where in the paperwork signed by fractional investors where it states where the fractional interests would be sold (pre-maturity), who will purchase it, how it will be evaluated for pricing, and what would happen if they weren't sold (who would make up for lost premium).
I believe you are referring to guaranteed UL policies? If so, there are two issues that I see. The first is that the premium payments had better be timely for the premiums to remain guaranteed. With potential fractional investors walking away, this could be an issue. The second is the policies settled in the mid-2000s, many of which were standard UL policies. Back them was before the 2008 change in LEs, and many of these policies were obviously not monitored by Life Partners. I'll bet that trust investment LPI was in went bust for this very reason. The LEs were off and the policies were not monitored.
The 10-Year bond is below 1.70% today. I'll bet whatever interest rate Life Partners assumed on those UL policies when they ran the initial policy illustrations was much, much, higher than what the policies are earing now. This is also where the money went. IMHO Life Partners and/or the trust companies had a fiduciary responsibility to monitor these policies on at least a yearly basis to insure they were performing as anticipated by the fractional investors. If the policies were not performing, either because the interest rate assumption was too low or because the LEs were off, Life Partners and the trust companies should have noticed this and notified the fractional investors that additional reserves would be necessary. Life Partners and the trust companies did not inform the fractional investors, so the scheme kept going on with new investors being blind to the potential problems.
I view this as a massive breach of fiduciary duty by LPI, the trust companies or both. Of course, I am not an attorney or judge in Texas, the state that loves economic growth regardless of how well the citizens are protected.
Where did the money go? The fractional investors didn't reserve enough early on so their money was thrown away. This is a classic case of "throwing good money after bad."
One assumption used by forensic accountants is that when sales stop a lot will get exposed. Same with new line items showing losses. Sales relating to the primary business greatly stopped, but now enormous fees are being generated from the absurd policy platform charge (enough to pay the Pardo clan outrageous salaries) and resales into Paget Holdings, a related company. The common entity between Paget Holdings and Pardo's money, including what he took out in dividends, is the offshore Pardo Family Trust.
We can guess that the premium reserves are low based upon court filings (heck, everything else we quessed about over the years was pretty much on the money). What if the money from the maturities in Paget Holding was somehow used to pay underfunded premiums to keep current policies alive? I know this is far fetched, but no one yet explained the mysterious foreign loss that was reported. If so, is,this a Pozzi scam? If not, is it a scam if the creation of the platform service fee was done for the purpose of getting fractional holders to dump their policies into a related company owned by Pardo's daughter and part of his Family trust? Is it a scam if fractional investors are being told they will lose their policies if they are late with these new platform service fees? No bank will foreclose on a mortgage for one late payment, and that is based on a contractual document produced at the time of the mortgage and not something made-up at a later date!
Is the plan to get the fractionals out of their policies at a big haircut so the Pardo's enrich themselves with more fees and the maturities, or is the plan to get those policyholders out so that the money can be used to keep the current policies in force? If the Pardo's were truly transparent and honest, wouldn't they purchase these resales at the same price the fractional investors paid and not at a much lower one? Tell me if I am wrong. If I am right, should there be a criminal investigation?
I would think a man with those lofty qualifications could put together a spreadsheet that could accurtely calculate the rate of return the fractionals actually received and help Dr. Cassidy determine how accurate his LEs were/are. Instead, he did nothing but approve what P & P wanted.
Pardo probably ties his self-worth to his prestige and net worth. Furthermore, the sales pitch includes bragging about LIHI being a NASDAQ company. Therefore, he will tell the BOD to fight the delisting.
Pardo once had a big net worth (when the stock was 100x higher). Now his net worth largely comes from the dividends he sucked out of the company leaving the plaintiffs with little or nothing.
I wonder if some of the "premium" never made it to the carriers and instead went offshore? That offshore trading loss was odd, wasn't it?
This is where Advance Trust comes in. Assuming destroyed documents and two sets of books, Advance a Trust can clear things up with copies of either checks to the carriers or copies of the wire transfers.
1) How does the Chapter 11 filing effect the class action suits?
2) Is it possible to recovery the money Pardo took out of the company, assuming he knowingly did so figuring a Chapter 11 bankruptcy would be filed if any of the suits against the firm was successful?
3) What is the current status of the securitization issue in TX?
4) What is the current status of the claims payments from both the corporate and the directors & officers insurance policies now that fraud was proven and penalties assessed? Does LPHI, LPI, Pardo and Peden have to pay back the money?
5) Will the appointed trustee investigate the other cast of characters in this mess, including Advance Trust, the Pasadena Pumper, and certain members of the BOD?
He is now officially what the SEC called a serial fraud recidivist. ASK Corp was his first fraud.
The trustee will want to see what is really happening with the firm. This means lots of subpoenas and perhaps a hard look at Advance Trust.
The overseas trading bombshell found in the last 10Q filing could be linked to fraud.
Criminal charges could still be filed.
Pardo and Peden still have penalties to be paid. Pardo has the cash, Peden may not given his lack of expertise in investments (assuming he invested in the same deals as the fractionals).
The flawed business model has not changed.
Texas might uphold that life settlements are indeed securities. IMHO full disclosure will kill the sales of life settlements to the public.
The bogus "Platform Maintenance Fee" might be found to be a breach of contract. Then Life Partners would have to refund all that money.
Or will it come back for another movie? I wonder how much Life Partners could have raised for that supersedeas bond if $60 million plus in dividends didn't go out the door. Heck, they could have paid the fine! Those dividends were paid for by the fractional investors, along with the yacht, jet, etc..
Is Advance Trust (Dunnam & Dunnam) connected to Life Partners? Yes and no. They have separate ownership, yet: 1) Pardo is good friends with Vance Dunnam; 2) Dunnan represented Pardo (well, Life Partners) suing critics of the company, which is a form of intimidation for those not living in California (anti-SLAPP laws exist in CA); 3) The companies had some sort of revenue sharing arrangement with client money that was earning interest before it was used to purchase policies; 4) Jim Dunnam owned shares of LPHI (I don't know if he still owns them) and 5) Pardo donated $500,000 for a Waco charter school building fund and named the building after his friend, Vance Dunnam. All the money is controlled by the Dunnam owned entity, and at one point was kept at JP Morgan-Chase. Is this relationship "arms length?" No chance. Illegal? No, unless the Dunnam & Dunnam lawyers did something we don't know about. There is no current proof that they did anything improper. At some point all those records will be deposed and we'll find out who knew what and when they knew it. Even if the Dunnam clan knew the LEs never, ever reflected reality, and even if they knew how many policies were in trouble before the fractional investors did, was there an obligation to do anything about this knowledge? And if they did, is this an ethical issue or something more? I guess they do things differently in Texas.
There is no reason for the stock to be so high, since operations are in danger of ceasing with negative assets. Who owns it all now? Somehow all the stock must have ended up in friendly hands.