This blog is belongs in the category of: “You can’t make this stuff up.”
Life Partners Holdings’ business plan is simple: pay people a small sum up front in exchange for that person’s life insurance policy. Life Partners then sells shares in those life insurance policies as securities to average independent investors. Essentially, Life Partners and its investors make money by betting that people will die sooner rather than later. The sooner the death, the quicker (and larger) the payout on the life insurance policy. Yuck. Isn’t there a better way to make a living; say build a house, clean the streets, heck, run for President?
To boot, Life Partners is not alone. There are plenty of players in this “bet on death” space. Life Partners is different though; they are financed by average investors as opposed to institutional investors.
What happens if the policyholders outlive their insurance policies? Well, in that case, Life Partners and its investors take a hit. You must be thinking, “Wow, they better have some good actuaries over there to minimize risk.” Nope. Turns out Life Partners Holdings hired an unqualified doctor to make unreasonable and incorrect estimates on life expectancy. Why? Hard to say, but it suggests that all along the business might have been about making money for the owners and to heck with the investors. According to the SEC, the doctor estimated on average that policy holders would live 4.6 years, but, in actuality, sound actuarial practices would’ve revealed an average life expectancy of 9 more years – 13.6 in total. Thus, investors were tricked into thinking securities were far more valuable than they actually were.
Can you say snake oil!
Life Partners was recklessly selling securities whose value was far below the advertised price, leaving little chance for positive return for investors.
The SEC, undeterred by the slap down it received from Judge Rakoff, has filed charges alleging disclosure and accounting fraud as well as insider trading by the company’s CEO, Brian Pardo and General Counsel, R. Scott Pelden who each sold millions of dollars of stock based on insider knowledge of Life Partners’ weak financial state.
As if the business of betting on death wasn’t already sleazy enough, the folks over at Life Partners have taken it to a whole new level. “Have you no shame, Mr. Pardo and Mr. Pelden?” It’s one thing to be in the business of profiting on the early death of others but to do that and cheat is just beyond reprehensible. I can’t see this pair being invited to the elementary school on “what my father does for a living day.”
Assisted by Zachary A. Kady