Life Partners Wins Ruling That Settlements Aren’t Securities

Life Partners Holdings Inc. and its Life Partners unit won a ruling by a Texas judge that the interests it sells in life insurance policy settlements aren’t securities covered by state law.

Judge Stephen Yelenosky denied state Attorney General Greg Abbott’s bid for an order blocking the Waco-based businesses from selling those policy interests after a two-day hearing at the Travis County District Court in Austin. Yelenosky said he would issue a written order later.

Abbott alleged in a lawsuit last month that Life Partners was deceiving buyers of the settlement interests about the life expectancies of people insured under the policies. The company denied those claims and said two prior courts had already decided the securities issue in its favor.

“I don’t think this is a security under Texas law,” Yelenosky said before hearing any defense testimony at today’s proceeding. “Maybe I understand why it should be a security, but that’s not the question,” he said.

State attorney Jennifer Jackson argued before the judge the life settlements that Life Partners markets to investors are securities and that investors need the protection of the Texas Securities Act.

Previous Courts

Defense attorney Elizabeth Yingling countered by saying two previous courts -- a state appeals court and a federal circuit court in Washington -- had ruled the policies aren’t securities. She said the policies are governed by the Texas Department of Insurance.

State attorneys presented witnesses to try to show that Donald Cassidy, who provided life expectancy estimates for Life Partners Inc., came up with estimates significantly below what others in the field would have given. But Yingling said expectancy estimates vary because of the availability of different medical records and other factors.

“Just because they’re shorter doesn’t mean they’re wrong,” Yingling said during her questioning of a witness.

Scott Peden, president of Life Partners Inc. and general counsel of Life Partners Holdings, said after the hearing, “We’re very pleased with the result and are pleased to see that justice was done.”

Will Appeal

Peden and Chief Executive Officer Brian Pardo were also named as defendants in the attorney general’s complaint.

Abbott will appeal the ruling, his spokeswoman, Lauren Bean, said in an e-mailed statement.

“Life Partners is charged with defrauding thousands of investors in violation of the Texas Securities Act,” Bean said. “The defendants are attempting to evade state oversight by arguing that its products are not securities -- a claim that is inconsistent with prior U.S. Supreme Court precedent.”

The case is Texas v. Life Partners Holdings Inc. (LPHI), D-1-GV- 12-001128, District Court of Travis County, Texas, 201st Judicial District (Austin).

To contact the reporters on this story: Andrew Harris in Chicago at aharris16@bloomberg.net; Kelley Shannon in Austin at kelley@kelleyshannon.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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