A Texas bankruptcy judge has approved a massive $1 billion settlement presented by Life Partners Holdings’ court-appointed bankruptcy trustee. The settlement will resolve class action litigation alleging that thousands of investors were fraudulently misled into purchasing bad life insurance settlements with promises of big returns.
U.S. Bankruptcy Judge Russell F. Nelms approved the settlement that covers legal claims brought on behalf of more than 20,000 investors. His approval overcomes a major hurdle in Life Partners Holdings’ attempt to restructure, after filing for bankruptcy in early 2015.
The settlement, filed in April, came weeks after Chapter 11 trustee H. Thomas Moran II said that Life Partners, and its former CEO Brian Pardo, engaged in one of the largest frauds in Texas history. Mr. Moran claims that under Pardo’s direction, Life Partners solicited investors to purchase a stake in life insurance policies the company acquired. Life Partners acquired them for less than the total value of the policies, which mature when a person dies. The trustee states it will take decades for all of the policies in Life Partners’ portfolio to mature.
According to Mr. Moran, Pardo and Life Partners aggressively marketed these investments with life expectancy figures that were far shorter than they actually were, deceiving investors–many of them elderly–who were led to believe they would receive double-digit returns.
The parties’ agreement provides for the certification of a settlement class in Life Partners’ bankruptcy cases for purposes of voting on a Chapter 11 plan. The agreement would break the class into various subclasses, the largest of which includes 11,322 investors.
Reports currently estimate the total value of the settlement for class members at $1,078,582,000. The settlement also caps attorneys’ fees for Plaintiffs’ counsel at $33 million. The present value of the fees, which would be paid out over time, is $5,219,043. Judge Nelms appointed Keith L. Langston of The Langston Law Firm as class counsel.
Lawyers for the trustee and the Plaintiffs have said the settlement serves the interest of both the estate and the investors. The bankruptcy judge concurred that the agreement was fair and reasonable, explaining that the settlement resolves the ownership issue. Resolving that issue makes the prospect of a confirmed Chapter 11 plan that maximizes recovery for claimholders more likely. The court’s order said:
The complexity, expense, inconvenience, and delay of litigation is overwhelming and, in some respects, would waste the assets of the estates that otherwise would be available for creditors who ultimately hold allowed claims in this case.
Life Partners filed for bankruptcy in 2015 in response to a $47-million jury verdict obtained by the SEC. At the time of Life Partners’ bankruptcy, $1.4 billion in investor funds were at risk, according to the trustee. In September, the trustee sued Pardo for more than $40 million in damages over money he transferred to himself and his family. Pardo served as Life Partners’ CEO and chairman until early 2015.
David M. Bennett, Richard B. Roper and Katharine Battaia Clark of Thompson & Knight LLP represent the trustee. The Plaintiffs are represented by Bieging Shapiro & Barber LLP, the Langston Law Firm and Sternklar Law, LLC. The case is in the U.S. Bankruptcy Court for the Northern District of Texas.