SEC v. Life Partners Holdings, Inc.
Opinion Date: April 21, 2017
Judge: James L. Dennis
Areas of Law: Securities Law
The SEC brought an enforcement action against LPHI and two of its senior officers, Pardo and Peden, alleging violations of reporting and anti-fraud provisions of the federal securities laws. The SEC alleged that LPHI, a company in the business of facilitating the sales of existing life insurance policies to investors, knowingly underestimated life expectancies for the insureds in public filings with the SEC. A jury found defendants liable for violations of section 17(a) of the Securities Act of 1933 and section 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. 77q(a), 78m(a). The district court sustained the jury's verdict as to section 13(a), but the district court set aside the verdict as to section 17(a). The district court then imposed civil penalties and issued injunctions restraining them from committing additional violations of the securities laws. The district court declined to order Pardo to reimburse LPHI for compensation under section 304 of the Sarbanes-Oxley Act (SOX), 15 U.S.C. 7243(a). Both parties appealed. The court found no abuse of discretion in the admission of the SEC expert witness's opinion; the evidence was sufficient to support the jury verdict that defendants aided and abetted LPHI's violation of section 13(a) and the rules thereunder; the court affirmed the district court's imposition of second-tier penalties; remanded the case specifically for recalculation of the number of violations without the flaws conceded by the SEC and for reassessment of the amounts of civil penalties imposed on defendants; and affirmed the district court's injunctions. As for the SEC's cross-appeal, the court concluded that the jury's section 17(a) verdict must stand and reversed the district court's grant of judgment as a matter of law, remanding for determination of appropriate remedies; the district court erred in concluding that the restatements were not required by LPHI's misconduct in connection with its underestimated life expectancy estimates; and the court reversed the district court's judgment, remanding for that court to determine the appropriate amount of SOX reimbursements.
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