Judge to Approve Life Partners Plan for Investors

By: Katy StechRelated Attorney(s): Joseph J. Wielebinski

Wall Street Journal

Oct 10, 2016

Life Partners Inc. customers whose investments were once threatened by the Waco, Texas, firm's financial problems will be able to transfer their investments to another firm after a bankruptcy judge agreed to sign off on a plan that lays out the procedures for that transfer.

Judge Russell Nelms said in court Friday that he would confirm the plan put forth by Life Partners' lawyers, which calls for life-settlement firm Vida Capital Inc. to take over the administration of Life Partners' roughly 3,400 life-insurance policies. Under the plan, Life Partners' roughly 22,000 customers could vote to cancel or keep their investments.

Through Life Partners, a life-insurance policyholder sold his or her policy at a discount to an investor for immediate cash. Life Partners broke red the transactions for a fee. Buyers of the policies continued paying the premiums hoping to get a profit when the insured person dies and the policy pays out.

David Bennett, a bankruptcy lawyer who helped craft the plan, said that Life Partners risked running out of money to pay policies after filing for bankruptcy in January 2015, which could have led some of the policies in the company's $2.3 billion portfolio to lapse and leave customers with no monetary recovery. Many of Life Partners' customers are older and had little expertise in the life-settlement industry, according to earlier documents filed in U.S. Bankruptcy Court in Fort Worth, Texas. Under the plan, customers will recover roughly 90% of their investment, he said.

"We had a number of people whose life savings were in jeopardy when this case was filed," Mr. Bennett said.

Financial professionals led by court-appointed trustee H. Thomas Moran II, who took over Life Partners' operations after it filed for bankruptcy, later stated that the firm ran "one of the largest and longest-standing fraud schemes" to unfold in Texas.

Life Partners has been accused of using unrealistic life-expectancy projections, which customers relied on to choose policies in which to invest. The estimates were the focus of a December 2010 article in The Wall Street Journal that found that 95% of the insured in deals brokered by Life Partners in 2002 were still living beyond the life expectancies estimated by a company physician. Previous Life Partners leaders have denied that characterization.

In 2012, the U.S. Securities and Exchange Commission accused Life Partners of making misleading statements and won a $46.9 million partial court judgment against the company, its founder Brian Pardo and another executive.

Mr. Pardo, who founded the company in 1991, has denied wrongdoing, and the judgment is under appeal. Life Partners' parent company filed for bankruptcy on Jan. 20, 2015, and its operating subsidiaries filed later.

The decision from Judge Nelms came after a five-week trial, during which several groups of customers argued for more time to look for cheaper proposals from other firms that could manage the lucrative Life Partners portfolio. Judge Nelms ruled that Life Partners officials who advocated for the plan made reasonable business decisions when doing so, said Joseph Wielebinski, a lawyer who represented a committee of customers and helped write the plan.

The plan gives customers "a solid foundation that was battle tested in the court to allow them to recoup their investments under the options that they elected," Mr. Wielebinski said.

Under the plan, Life Partners investors will be able continue paying premiums on the policies they bought, hoping for an eventual payout, or they can transfer their investment to a pool that would distribute payouts widely as the policies mature.

URL: http://www.wsj.com/articles/judge-to-approve-life-partners-plan-for-investors-1476133324