© 2017 The Texas Lawbook.
By Mark Curriden
(June 22) – The long and sordid legal drama known as Life Partners took another step toward finality last week when a Fort Worth jury ruled that the company’s former chief executive officer and its general counsel committed fraud and breached their fiduciary duties to investors.
For more than two years, Thompson & Knight partner Jennifer Ecklund has fought to get money back for investors who claim they were bilked for hundreds of millions of dollars in the massive life insurance settlement fraud scheme allegedly perpetrated by Life Partners executives.
Life Partners, which was a publicly traded company, acted as a broker by purchasing life insurance policies from terminally ill patients for a discounted price and then sold a stake in those policies to investors who would pay the premiums until the policyholder died.
The U.S. Securities and Exchange Commission accused Life Partners of intentionally and fraudulently underestimating the life expectancy of the individuals when it sold the policies to investors. The SEC called it one of the largest corporate frauds in Texas history.
On June 13, Ecklund’s tedious work paid off when a federal jury in Fort Worth ordered Brian Pardo, the former CEO at Life Partners, and his family to pay $65 million in actual and punitive damages to the 22,000 individuals who invested in the Waco-based life insurance settlement provider.
The eight-person jury heard from more than two-dozen witnesses over six days, including 10 investors. The panel deliberated for nearly 12 hours before returning the huge damage award.
“The verdict is the result of two and one-half years of litigation,” says Ecklund, who represents investors through the Life Partners Creditors Trust.
While the jury ruled that Life Partners former general counsel R. Scott Peden also committed fraud, they said he did not have to pay any damages to the investors. Peden represented himself at trial and is now a high school teacher in East Texas.
Houston business litigator Robert Burford, who represents Pardo, says a significant portion of the $65 million is either duplicative or has already been ruled inappropriate under the law by the judge in the case. He predicts the judgment will be reduced to $15 million or less.
“What’s telling is they sought $601 million in investor claims and they got $1 million,” Burford said in an email to The Texas Lawbook.
This is the second major legal setback for Pardo. In 2014, the SEC obtained a judgment against the former CEO for securities fraud. The federal judge ordered Pardo to pay $6 million in fines. The court also hit Peden with a $2 million penalty.
In January 2015, Life Partners filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The court-appointed trustee in the case hired Ecklund to seek to recover money lost by the investors.
“This is the first time that the investors had their day in court,” Ecklund says. “They told the jurors their stories, how they came to invest and the information that they relied on.”
Ecklund argued to the jury that Pardo and Peden “knowingly devised and implemented a scheme to defraud investors who wished to purchase fractional interests in insurance policies from [Life Partners] and obtain money and property from these investors by false and fraudulent pretenses, representations and promises.”
Pardo and Peden, she argued, hired Dr. Donald Cassidy, who had “no actuarial experience or training and no experience in rendering life expectancy,” to provide shorter projections for the life expectancy of those insured by the policies.
Ecklund showed the jury that the vast majority of the insured outlived Dr. Cassidy’s lower life expectancy predictions, which meant the investors were forced to pay premiums – payments that Pardo used “to line his and his family’s pockets.”
Pardo’s daughter and son-in-law were employed by Life Partners as vice presidents. They were paid a combined $4.5 million between 2008 and 2014, according to court records.
Life Partners paid Peden more than $2.6 million during that same time period.
Court records show that Life Partners owned about 3,400 life insurance policies with a face value of $2.4 billion.
“We celebrated [the jury verdict] with a good night’s sleep for the first time in a while,” Ecklund says. “And the next day, our trial colleagues back at TK Dallas took us for a barbeque lunch to mark the occasion.”
The month of June has become Ecklund’s favorite time to try cases. Last June, she won a $7.5 million judgment for her client, McKinney-based Encompass Office Solutions, against BlueCross BlueShield of Louisiana for unpaid services and tortuous interference with business.
The other Thompson & Knight lawyers who took leading roles in the trial are partner Bill Banowsky and associate Mackenzie Wallace. T&K partner David Bennett represented the bankruptcy trustee in the bankruptcy court proceedings.
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