Life Partners Holdings recently disclosed that it received a Wells Notice from U.S. Securities and Exchange Commission, which includes allegations on disclosure regarding its accounting policies and practices. Meanwhile investigation on behalf of current long term investors in Life Partners Holdings, Inc. (NASDAQ:LPHI) over possible breaches of fiduciary duties by certain officers and directors of Life Partners Holdings, Inc. continues.

On May 13, 2011 Life Partners Holdings, Inc disclosed that on May 9, 2011, it received a Wells notice from the staff of the U.S. Securities and Exchange Commission (SEC) stating that the staff will recommend that the SEC bring a civil injunctive action against Life Partners Holdings, Inc and two of its directors and executive officers, Brian D. Pardo and R. Scott Peden, for possible violations of the Securities Act of 1933 and Securities Exchange Act of 1934, and certain rules thereunder

The recent amended Wells Notice from the SEC follows a lawsuit filed in early 2011 by investors who of purchased LPHI securities only between May 29, 2007 and January 19, 2011, over alleged violations of Federal Securities Laws by Life Partners Holdings and

According to the complaint filed in the United States District Court for the Western District of Texas the plaintiff alleges only on behalf of investors of Life Partners Holdings, Inc. (Nasdaq: LPHI),who purchased or otherwise acquired LPHI securities only between May 29, 2007 and January 19, 2011, that Life Partners Holdings, Inc. violated the Securities Exchange Act of 1934 by failing to disclose and misrepresenting material adverse facts between May 29, 2007 and January 19, 2011.
Life Partners Holdings, Inc., through its subsidiary Life Partners, Inc., is engaged in the secondary market for life insurance known generally as life settlements. Life settlement transactions involve the sale of an existing life insurance policy to another party. The purchasers acquire the life insurance policies at a discount to their face value for investment purposes. The purchaser takes an ownership interest in the policy at a discount to its face value and receives the death benefit under the policy when the insured dies. But if the insured individual's death comes later than estimated, the payout is delayed and investors must continue paying premiums, reducing their eventual returns.
In December 2010, The Wall Street Journal published an article questioning the Company's life-expectancy estimates and business practices. The Wall Street Journal said that Life expectancies are a key factor in the business of investing in strangers' life insurance. If estimates are too low, investors face a double whammy: Their policy payout is delayed, and they must keep paying premiums as the person lives on. The Wall Street Journal said its investigation found that at Life Partners [..] the result is that 10% or 15% yearly returns promoted to investors may prove elusive for many. And that Attractive projected returns for clients are part of the company's formula for success.
In fact Life Partners Holdings 12months Total Revenue went over the past four filing periods from $29.8million to $113million. Its Net Income went from $3.36million to $29.43million over the same period.
The Wall Street Journal article followed a comprehensive investigation into how Life Partners Holdings, Inc sold life settlement policies to investors. In particular, the article stated that Life Partners Holdings 'has made large fees from its life-insurance transactions while often significantly underestimating the life expectancies of people whose policies its customers invest in.' Then on January 20, 2011, The Wall Street Journal reported, and Life Partners Holdings, Inc subsequently confirmed, that the SEC was investigating Life Partners. The article reported that 'As part of its probe, the SEC's enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals.'
Shares of Life Partners Holdings, Inc. (NASDAQ:LPHI) have dropped nearly 56 percent since Life Partners Holding, Inc. confirmed the SEC investigation and The Wall Street Journal article.
LPHI shares decreased from as high as $18.37 per share in the beginning of December 2010 to recently $3.67 per share.