LPHI: This Life Partner May Not Be Good for You

stock ticker: LPHI

Life Partners (LPHI) is a viatical/life insurance settlement provider based in Waco, Texas. LPHI acts as dealmaker – it arranges for buyouts of life insurance policies in cases where the death of the policyholder can be anticipated within a finite timespan. It earns fees by connecting these potential settlors with investors, who agree to front the money and pay the premiums, in exchange for rights to the policy benefit face amount, which is received following the settlor’s subsequent death. Clients are mostly individuals who are referred to Life Partners through financial planners, lawyers, insurance agents and CPA’s.

It is the belief of Citron that this company has too many red flags that investors are advised to consider carefully:

Red Flag # 1. Egregious fees.

We believe Life Partners is charging their retail investor clients egregious fees. Are LPHI’s clients getting a good deal? It is hard to believe. LPHI makes money by connecting sellers and buyers of life insurance policies and collecting an upfront fee. However, it is difficult to understand how clients of Life Partners can make attractive or even positive returns when fees of $500,000 per transaction are layered into the IRR calculation.

Below let’s explore some transaction statistics from LPHI’s most recent quarter:

	Q3-09 as of 11/30/2008
Revenues	28,103,930
Brokerage and referral fees	13,857,587
Revenue, net of brokerage fees	14,246,343
Face value of policies settled	195,459,950
Number of policies settled	56
Average face value per policy	3,490,356
Average fees per settlement	501,856
Fee as a percentage of policy face value	14.38%
Average fee split to broker	247,457
Average fee retained by LPHI	254,399

Citron’s first question is whether this level of fee income is even remotely sustainable. How does the company garner such a big piece of the settlement pie for itself ? When a company out-margins its competition by hundreds of percent, investors should understand the business model. There had better be a significant competitive edge, and a high barrier to entry, or competition will rapidly erode those margins.

A recent lawsuit by the Colorado Securities Commissioner provides significant insight into how LPHI has been operating.

As you can see above, LPHI’s gross commissions were 14.4% of the face value in 3Q09 (ended 11/30/08). Yet, according to the Wall Street Journal, “life-settlement brokers often pocket the lesser of 6% of a policy’s face value or 30% of the gross sale price.” If you invest in a policy through LPHI, however, you are paying nearly two-and-a-half times the customary industry fee level.

According to Sanford Bernstein, investors of life settlements typically seek target IRR’s of 9% to 13%. However, Life Partners has promised as high as a 16% IRR on their investments, according to their radio adds.

If LPHI is forced to cut margins even by half to approach industry norms, its net profit will sink by 63%.

And it gets even more fishy here.

Red Flag # 2. Are those fees sustainable?

Is this high fee level sustainable? Or in other words, how does LPHI get away with their egregious fees and still provide higher than market IRR’s to their investors?

In our opinion, they are not. They can only be carving out such huge fees by concealment:

1. Failing to disclose their fees transparently to the investors and settlors
2. Preventing the transaction from being priced competitively by any sort of bidding process
3. … and worst, not disclosing the true actuarial life expectancy of the insured (the largest single factor impacting the ultimate percentage IRR on the investment )

While Life Partners may be better than other providers at finding attractive policies, with 90% of volume (according to their 10-K) coming from brokers, it appears that they are partnering with brokers and insurance agents to thwart a competitive bidding process.

In the above example, assuming the transaction is completed at 35% of face value ($1.2mm), LPHI’s clients are paying $500k of upfront transaction fees, or over 40% of the gross sale price. Note that LPHI takes its entire fee upfront, while the investor will not find out the true investment performance for years down the road. According to the May 2007 complaint filed by the Colorado Securities Commissioner against Life Partners alleging violations of the Colorado Securities Act, Insurance Commissioner alleges that LPHI:

failed to disclose to investors the method by which life expectancy was determined; the high frequency rate in which viators outlived the life expectancies predicted by Life Partners.

It is further alleged that Life Partners failed to disclose the original purchase price of the policy and commissions paid to the sales agents, making it impossible for an investor to determine the true market value of the policy.

Therefore, investors do not know their cost basis or how much of their “investment” is being pocketed by LPHI.

The need to conceal the fee structure is so central to LPHI’s operation that even last week, LPHI’s CEO would not give any information on his fee structure to a Wall Street Journal writer who was doing a puff piece on the company.

Life Partners Chief Executive Brian Pardo declined to give specifics of the fee structure or the size of lump-sum payments, which vary according to “underwriting factors”.

As a comparative data point, investors are encouraged to consider the fate of National Financial Partners, which owns Advanced Settlements, the largest life broker in country. They are famously run by Jessica Bibliowicz, the daughter of Sandy Weill. Yet, looking at their stock price in the $2 range tells us that the market for life settlements has cooled and their margins have been compressed. It is the opinion of Citron that this is the eventual future of LPHI.

In addition, LPHI shares a portion of the fees with their licensees and selling brokers. In its 2007 10-K, LPHI disclosed it paid one licensee over $6 million and two brokers over $4.5 million dollars. LPHI is not the only company getting rich at the expense of individual investors. The Colorado lawsuit increases the regulatory risk for these brokers and licensees as well. The Colorado lawsuit names 10 of these brokers and licensees’ in its lawsuit. This notoriety may disincentive others from entering into these cozy relationships with LPHI.

This explains why the lawsuits piling up in states across the country are so significant. As LPHI is found to be selling securities in state after state, and requiring insurance licensing in others, it faces a burden of disclosure which will force exactly those fee disclosures that will narrow its margins.

There is a consistent movement by states and regulatory bodies to license life settlement activity, cap fees and increase disclosure of fees. We believe litigation in Colorado, which went to trial in December 2008 is representative of legal pressures in many venues, and judging by LPHI’s business practices, is well justified. Other states have gone after Life Partners, including Virginia and the Utah Division of Securities.

Life Partners is licensed only in the state of Texas and a handful of others, and most notably absent is Florida, the largest life settlement state. But more and more states are requiring life settlement providers to be licensed in their state.

There are only 12 license providers in the State of Florida, (Company Type “Viatical Settlement Provider”).

In July 2007, Florida issued a cease and desist order against Great West Growth, an unlicensed life settlements provider. Great West was conducting business in Florida by using a licensed provider, Life Equity, to act as a fronting agent for Great West.

LPHI also operates in Florida … without a license.

On March 28, 2008, LPI filed a declaratory judgment action in the United States District Court for the Northern District of Florida to determine whether LPI is required to be licensed as a life settlement provider in order to purchase policies from Florida residents. We claimed that the Florida Office of Insurance Regulation does not have jurisdiction over LPI and that to assert just jurisdiction violates the Commerce Clause, Contracts Clause, and the Due Process Clause of the United States Constitution. On December 1, 2008, the District Court dismissed all of our claims except the due process claim. The matter is still ongoing.

Yet, in fairness to the company, they do disclose this risk clearly to investors in their 10Q through the all important line that some might overlook

Some states are moving to license life settlement brokerage activity, which may result in the capping of fees or great disclosure of fees, either of which would tend to lower the fees.

Obviously this all provides significant business risk to LPHI … and its lofty margins.

Red Flag # 3. Management track record

Past indiscretions by management, including accounting abuses and other issues increase the risks for investors in LPHI.

We have a CEO previously sanctioned by the SEC for materially misrepresenting financial results. In the 90’s, LPHI’s CEO was the CEO of American Solar King, which had a spectacular rise and fall (from over $90 per share to bankruptcy). It seems the CEO arranged for sales to dealers financed by huge uncollectible receivables. Specifically, the Complaint alleges that defendants violated the antifraud and reporting provisions of the securities laws and that the CEO made false statements to the company’s auditors, materially overstating the company’s revenues and profits. OOPS!

Red Flag # 4. Who’s minding the store?

Who is minding the store now? LPHI’s auditor is a tiny firm with a really small public company practice. And we mean really small.

Murrell, Hall, McIntosh has about 16 other publicly traded clients:

Symbol	Company	Recent Price / Share	Recent Volume	Market cap
CPSL	China Precision Steel, Inc.	1.23	427,164	57.3
QELP	Quest Energy Partners, L.P.	1.52	14,595	32.2
ALHC	ALLIANCE HEALTHCARD INC	0.55	0	< 20
EMDY	EMERALD DAIRY INC	0.35	0	< 20
SOON	SOONER HLDGS INC	0.16	0	< 20
GRMH	GrayMark Healthcare, Inc.	1.96	0	53
FFHL	Fuwei Films (Holdings) Co., Ltd.	0.51	0	< 10
CEUA	CHINA EDUCATION ALLI	0.78	0	25
GLGI	GREYSTONE LOGISTICS	0.07	0	< 10
GCIH	GREAT CHINA INTERNAT	0.35	0	< 10
FULO	FULLNET COMMUNICATIONS INC	0.01	0	< 10
RSRV	RESERVE PETROLEUM CO	350	0	60
AOGN	AVALON OIL & GAS INC	0.035	0	< 10
WRGI	WORLD RACING GROUP	0.035	0	< 10
MDOR	MAGNUM D OR RESOURCE	0.4	0	< 10
QRCP	Quest Resource Corporation	0.33	125,546	< 10
LPHI	Life Partners Holdings Inc	0	159,287	418

LPHI has a higher market cap than all the auditor’s 16 other publicly traded clients combined!

Citron notes that the auditor fees paid by LPHI to Murrell et al. in the last three years are really tiny:

LPHI Auditor Fees	Fees
2008	85,881
2007	72,943
2006	36,036

In the wake of the accountants’ role in the Madoff scandal, investors and regulators clearly need to be mindful of whether the protection assumed to be provided by independent auditors is sufficient to provide investor protection within the given context. Remember that we’re considering a $400 million market cap company here.

Further the independent director in charge of the audit committee is Tad M. Ballantyne. Mr. Ballantyne has a colorful background with a variety of pink sheet penny stock companies, one of which is a “Republic of Mauritius” corporation, plus and a bean canning plant in the Midwest.

We’re concerned that this lack of oversight leaves LPHI’s receivables and net revenues open to “management”.

Red Flag # 5. Analyst coverage?

Interestingly enough only one firm “covers” Life Partners: Taglich Brothers. The only thing Citron can say is to look at the history of companies covered by Taglich … did we mention that the company pays Taglich $21,000 per year for “the creation and dissemination of research reports” ?

Red Flag # 6. Competition

Major competitors in the viatical settlement sector include: Maple Life, Peachtree, Coventry First, Life Settlement Solutions, and Life Equity. The five major providers have adopted “the full disclosure model”. And now, an online auction site, Cantor Fitzgerald’s LexNet, brings even more transparency to the process of matching investors and settlors for fees of only 1% to 2% vs. 14% from LPHI.

Red Flag # 7. Life Insurers: no longer “The Rock”

Life insurers are under enormous distress due to the financial crisis. In years past, investors in viatical settlements could assume with certainty that the policies in which they invested bore no counterparty risk. But those days are gone. Nearly every major life insurer is at risk of “insolvency” due to crisis of toxic real estate paper. The debt of several major insurance companies is already trading at distressed levels. In fact, potential investors can get similar returns by buying insurance company debt, without the mortality risk of viatical settlements.

Perhaps this is why there seems to be a current shortage of viatical investors. That “risk-free” 16% might not look so risk-free if the investor has to ask “Which will survive longer, the insured or their insurance company?”

Conclusion

Just two years ago, LPHI was an OTCBB stock that had never traded over $10. With its colorful CEO, lack of management oversight, tiny 30-employee operational footprint and string of regulatory troubles, it falls far short of the standard of accountability and transparency required of mid-cap Nasdaq companies. From an actuarial perspective, we’d say the odds are this one is terminal.

Cautious investing to all.

Comments

[User 356017:]

Having been in the industry, the fees in this industry are very generous, and LPHI's fees are not unheard of or irregular. Secondly, the author incorrectly calculates LPHI's returns. He clearly states their returns as $254K per case on an average policy of $3.5m, which equates to 7.14%, which is a hair above the 6% fee schedule published by the Wall Street Journal.

Frankly, the public knows nothing of this industry. The insurance companies offer about 1/3 what the life settlement brokers pay, and the life agents control the market. They are the ones that are advising their clients, without them, there is not market. Cut out the life and the life settlement companies and there is no market.

Feb 12 04:32 PM

[PROXIMO:]

Citron has a good track record. There is something to be said for exposing and profiting from POS corrupt companies. Enjoyed the article.

Feb 12 04:32 PM

[Tru Alpha:]

Andrew Left, Citron
Respondent/Effective Date
0253075 LEFT, ANDREW EDWARD 03/02/1998

Rule Summary
0253075 LEFT, ANDREW EDWARD
• C.R.2-29(a)(1) - FRAUDULENT COMM. TO PUBLIC PROHIB.
• C.R.2-2(a) - CHEAT,FRAUD DECEIVE CUSTOMERS

Committee Summary
0253075 LEFT, ANDREW EDWARD
• HEARING COMMITTEE
• APPEALS COMMITTEE
• BUSINESS CONDUCT COMMITTEE

Action Summary
0253075 LEFT, ANDREW EDWARD
• SALES PRACTICE
• GENERAL CONDUCT

Penalty/Event Summary
0253075 LEFT, ANDREW EDWARD
• RESTRICTIONS ON ACTIVITIES 2 YRS
• REQUIRED TO TAPE RECORD 2 YRS
• TEMPORARY BAR FROM NFA MEMBERSHIP 3 YRS
• MAY NOT SUPERVISE 2 YRS
• OTHER--SEE NARRATIVE

Narrative Summary
COMPLAINT -

ON DECEMBER 21, 1995, NFA'S BUSINESS CONDUCT COMMITTEE ("COMMITTEE") ISSUED A COMPLAINT TO UNIVERSAL COMMODITY CORPORATION ("UCC"), ANDREW N. STERN ("STERN"), CARL ROBERT SAATHOFF ("SAATHOFF"), LARRY S. FREEDBERG ("FREEDBERG"), LARRY ALAN KAHN ("KAHN"), JOHN THOMAS CIARAMELLA ("CIARAMELLA"), MARTIN SOMMERS ("SOMMERS"), DAVID RAY BRIDGES ("BRIDGES"), LEONARD PETER VITELLO, JR. ("VITELLO"), BENJI SCOTT DAYAN ("DAYAN"), JEFFREY LAWRENCE BURSTEEN ("BURSTEEN"), ARNOLD BARRY ZAGER ("ZAGER"), KENNETH ALAN ZINNER ("ZINNER"), WILLIAM KELLY PARKS ("PARKS"), MICHAEL D. BUSHEY ("BUSHEY"), MITCHELL GROSS ("GROSS"), DANIEL ALAN GETZ ("GETZ"), DAVID SCOTT STEINFELD ("STEINFELD"), ANDREW EDWARD LEFT ("LEFT") AND ADRIAN MULLER ("MULLER").

THE COMPLAINT ALLEGED THAT UCC, STERN AND SAATHOFF USED DECEPTIVE AND MISLEADING PROMOTIONAL MATERIAL, IN VIOLATION OF NFA COMPLIANCE RULES RULES 2-29(a)(1), 2-29(b)(1) AND 2-29(b)(2). THE COMPLAINT ALSO ALLEGED THAT UCC, BURSTEEN, SOMMERS, BUSHEY, BRIDGES, STEINFELD, DAYAN, PARKS, ZAGER, ZINNER, VITELLO, GETZ, LEFT AND MULLER CHEATED, DEFRAUDED AND DECEIVED COMMODITY FUTURES CUSTOMERS AND ENGAGED IN SOLICITATIONS WHICH OPERATED AS A FRAUD OR DECEIT, IN VIOLATION OF NFA COMPLIANCE RULES 2-2(a) AND 2-29(a)(1). MOREOVER, THE COMPLAINT ALLEGED THAT UCC, SOMMERS, ZAGER, GROSS AND GETZ FAILED TO OBSERVE HIGH STANDARDS OF COMMERCIAL HONOR AND JUST AND EQUITABLE PRINCIPLES OF TRADE IN THE CONDUCT OF THEIR COMMODITY FUTURES BUSINESS, IN VIOLATION OF NFA COMPLIANCE RULE 2-4. FURTHERMORE, THE COMPLAINT ALLEGED THAT UCC, STERN, SAATHOFF, KAHN, FREEDBERG AND CIARAMELLA FAILED TO DILIGENTLY CARRY OUT THEIR SUPERVISORY RESPONSIBILITIES, IN VIOLATION OF NFA COMPLIANCE RULE 2-9.

DECISION - BRIDGES, VITELLO, DAYAN, BURSTEEN, ZAGER, ZINNER, PARKS,

GROSS, GETZ, AND LEFT.


ON FEBRUARY 13, 1998, A DESIGNATED PANEL OF NFA'S HEARING COMMITTEE ISSUED A DECISION AFTER A HEARING TO BRIDGES, VITELLO, DAYAN, BURSTEEN, ZAGER ZINNER, PARKS, GROSS, GETZ AND LEFT. THE PANEL MADE THE FOLLOWING FINDINGS AND IMPOSED THE FOLLOWING PENALTIES:

ANDREW LEFT -


THE PANEL FOUND THAT LEFT MADE FALSE AND MISLEADING STATEMENTS TO CHEAT, DEFRAUD OR DECEIVE A CUSTOMER IN VIOLATION OF NFA COMPLIANCE RULES 2-2(a) AND 2-29(a)(1). LEFT'S CONDUCT WAS INCONSISTENT WITH JUST AND EQUITABLE PRINCIPLES OF TRADE.

CONSEQUENTLY, THE PANEL BARRED LEFT FROM ASSOCIATION WITH AND FROM ACTING AS A PRINCIPAL OF ANY NFA MEMBER FOR THREE YEARS; ORDERED HIM TO TAKE AN ETHICS TRAINING COURSE; AND PLACED RESTRICTIONS ON HIS ACTIVITIES FOR TWO YEARS WHICH PREVENT HIM FROM SUPERVISING ANY AP AND REQUIRE HIM TO TAPE RECORD AND LOG ALL CONVERSATIONS WITH CURRENT AND POTENTIAL CUSTOMERS.

Feb 12 05:53 PM

[Taymere:]

Thanks for your rumors smears and lies, they allowed me to triple my position in LPHI yesterday for a fraction of what I would have had to pay. Buy the rumor sell the news. It seems your main complaint is that they make waaaaay too much money. That type of analyst complaint is the last piece of the puzzle that was missing to qualify them as a "Rule Breaker" under the Motley Fool's definitions. Their ROE is amazing isn't it? And all that growth with zero debt and no thirst for acquisition junkets. They are using all that cash piling up to repurchase shares and to buy policies themselves. I'm down for life.

Feb 12 06:41 PM

[PROXIMO:]

A decade ago. Youthful indiscretion, no doubt.


On Feb 12 05:53 PM Tru Alpha wrote:

> Andrew Left, Citron
> Respondent/Effective Date
> 0253075 LEFT, ANDREW EDWARD 03/02/1998
>
> Rule Summary
> 0253075 LEFT, ANDREW EDWARD
> • C.R.2-29(a)(1) - FRAUDULENT COMM. TO PUBLIC PROHIB.
> • C.R.2-2(a) - CHEAT,FRAUD DECEIVE CUSTOMERS
>
> Committee Summary
> 0253075 LEFT, ANDREW EDWARD
> • HEARING COMMITTEE
> • APPEALS COMMITTEE
> • BUSINESS CONDUCT COMMITTEE
>
> Action Summary
> 0253075 LEFT, ANDREW EDWARD
> • SALES PRACTICE
> • GENERAL CONDUCT
>
> Penalty/Event Summary
> 0253075 LEFT, ANDREW EDWARD
> • RESTRICTIONS ON ACTIVITIES 2 YRS
> • REQUIRED TO TAPE RECORD 2 YRS
> • TEMPORARY BAR FROM NFA MEMBERSHIP 3 YRS
> • MAY NOT SUPERVISE 2 YRS
> • OTHER--SEE NARRATIVE
>
> Narrative Summary
> COMPLAINT -
>
> ON DECEMBER 21, 1995, NFA'S BUSINESS CONDUCT COMMITTEE ("COMMITTEE")
> ISSUED A COMPLAINT TO UNIVERSAL COMMODITY CORPORATION ("UCC"), ANDREW
> N. STERN ("STERN"), CARL ROBERT SAATHOFF ("SAATHOFF"), LARRY S. FREEDBERG
> ("FREEDBERG"), LARRY ALAN KAHN ("KAHN"), JOHN THOMAS CIARAMELLA ("CIARAMELLA"),
> MARTIN SOMMERS ("SOMMERS"), DAVID RAY BRIDGES ("BRIDGES"), LEONARD
> PETER VITELLO, JR. ("VITELLO"), BENJI SCOTT DAYAN ("DAYAN"), JEFFREY
> LAWRENCE BURSTEEN ("BURSTEEN"), ARNOLD BARRY ZAGER ("ZAGER"), KENNETH
> ALAN ZINNER ("ZINNER"), WILLIAM KELLY PARKS ("PARKS"), MICHAEL D.
> BUSHEY ("BUSHEY"), MITCHELL GROSS ("GROSS"), DANIEL ALAN GETZ ("GETZ"),
> DAVID SCOTT STEINFELD ("STEINFELD"), ANDREW EDWARD LEFT ("LEFT")
> AND ADRIAN MULLER ("MULLER").
>
> THE COMPLAINT ALLEGED THAT UCC, STERN AND SAATHOFF USED DECEPTIVE
> AND MISLEADING PROMOTIONAL MATERIAL, IN VIOLATION OF NFA COMPLIANCE
> RULES RULES 2-29(a)(1), 2-29(b)(1) AND 2-29(b)(2). THE COMPLAINT
> ALSO ALLEGED THAT UCC, BURSTEEN, SOMMERS, BUSHEY, BRIDGES, STEINFELD,
> DAYAN, PARKS, ZAGER, ZINNER, VITELLO, GETZ, LEFT AND MULLER CHEATED,
> DEFRAUDED AND DECEIVED COMMODITY FUTURES CUSTOMERS AND ENGAGED IN
> SOLICITATIONS WHICH OPERATED AS A FRAUD OR DECEIT, IN VIOLATION OF
> NFA COMPLIANCE RULES 2-2(a) AND 2-29(a)(1). MOREOVER, THE COMPLAINT
> ALLEGED THAT UCC, SOMMERS, ZAGER, GROSS AND GETZ FAILED TO OBSERVE
> HIGH STANDARDS OF COMMERCIAL HONOR AND JUST AND EQUITABLE PRINCIPLES
> OF TRADE IN THE CONDUCT OF THEIR COMMODITY FUTURES BUSINESS, IN VIOLATION
> OF NFA COMPLIANCE RULE 2-4. FURTHERMORE, THE COMPLAINT ALLEGED THAT
> UCC, STERN, SAATHOFF, KAHN, FREEDBERG AND CIARAMELLA FAILED TO DILIGENTLY
> CARRY OUT THEIR SUPERVISORY RESPONSIBILITIES, IN VIOLATION OF NFA
> COMPLIANCE RULE 2-9.
>
> DECISION - BRIDGES, VITELLO, DAYAN, BURSTEEN, ZAGER, ZINNER, PARKS,
>
>
> GROSS, GETZ, AND LEFT.
>
>
> ON FEBRUARY 13, 1998, A DESIGNATED PANEL OF NFA'S HEARING COMMITTEE
> ISSUED A DECISION AFTER A HEARING TO BRIDGES, VITELLO, DAYAN, BURSTEEN,
> ZAGER ZINNER, PARKS, GROSS, GETZ AND LEFT. THE PANEL MADE THE FOLLOWING
> FINDINGS AND IMPOSED THE FOLLOWING PENALTIES:
>
> ANDREW LEFT -
>
>
> THE PANEL FOUND THAT LEFT MADE FALSE AND MISLEADING STATEMENTS TO
> CHEAT, DEFRAUD OR DECEIVE A CUSTOMER IN VIOLATION OF NFA COMPLIANCE
> RULES 2-2(a) AND 2-29(a)(1). LEFT'S CONDUCT WAS INCONSISTENT WITH
> JUST AND EQUITABLE PRINCIPLES OF TRADE.
>
> CONSEQUENTLY, THE PANEL BARRED LEFT FROM ASSOCIATION WITH AND FROM
> ACTING AS A PRINCIPAL OF ANY NFA MEMBER FOR THREE YEARS; ORDERED
> HIM TO TAKE AN ETHICS TRAINING COURSE; AND PLACED RESTRICTIONS ON
> HIS ACTIVITIES FOR TWO YEARS WHICH PREVENT HIM FROM SUPERVISING ANY
> AP AND REQUIRE HIM TO TAPE RECORD AND LOG ALL CONVERSATIONS WITH
> CURRENT AND POTENTIAL CUSTOMERS.

Feb 12 06:52 PM

[roy mckoi:]

my gawd man, you will lose you shirt on this....

On Feb 12 06:41 PM Taymere wrote:

> Thanks for your rumors smears and lies, they allowed me to triple
> my position in LPHI yesterday for a fraction of what I would have
> had to pay. Buy the rumor sell the news. It seems your main complaint
> is that they make waaaaay too much money. That type of analyst complaint
> is the last piece of the puzzle that was missing to qualify them
> as a "Rule Breaker" under the Motley Fool's definitions. Their ROE
> is amazing isn't it? And all that growth with zero debt and no thirst
> for acquisition junkets. They are using all that cash piling up to
> repurchase shares and to buy policies themselves. I'm down for life.

Feb 12 07:40 PM

[Ironfish:]

Citron (Left) almost always has a short position on the stocks he slams.You'll notice that all his pieces are negative.
I have no opinion on LPHI.

Feb 12 07:59 PM

[James Davis:]

I heard Brian Pardo on Bloomberg radio just not long ago. He sounded like a good old boy, very impressive, and touting the stock.

Im sure more than a few bought on that pump and are now losing large. I have no idea if the knocks are legit, but its just the kind of biz where you could play a lot of games.

Meanwhile , Pardo issued a press release, and Cramer also put the knock on this .

Feb 13 01:56 AM

[abcde_98:]

Article raises some issues and considerations, take it as an alert for further due diligence.

I am neither long nor short, just providing some fundamentals, experience, and outlook.

Comments:
1. I have assessed business plans in this market segment. Historically, the ones making most money with least risk in this segment have been the sales/producers/interm... Reinsurers, rumoured as Lloyds, took losses particularly with, rumoured risk structure, of taking the risk that the insured lived beyond two years and without any capping of the risk (ie, open-ended beyond year two).

2. The profits pie/circle was large but as:
(a) the market becomes more mainstream (more competitors, increasing awareness through TV ads, articles, etc)
(b) capital providers better understand that there is risk, and demand a return commensurate with risk even in a low rate environment, cost of capital is greater due to scarcity and systemic risks
(c) insurers and reinsurers adopt structures to better manage risk, and charge higher rates
etc etc
then there is likely to be a re-balancing or the proportion of the profits amongst stakeholders

3. Take each process/function/servi... of the business, and list good/best practice in one column, and then list what Life Partners or other companies do for each service.

4. Alignment of interests. I would like to see any revenue producing (or revenue-based incentivized) organization to also be aligned in the profitability of the risks that are underwritten. By this I mean the profits of the risks underwritten, not the stock price.

Just some considerations.

Disclosure: neither short nor long from an investment perspective, and no business relationship with Life Partners. From a potential client perspective, remain neutral as potentially may advise any stakeholder in the business (capital providers, risk bearers, underwriters, operational/adminstrat... service providers, investment/asset management providers, consumers, distributors/deal sourcers, etc.)

Feb 13 08:11 AM

[Thinkingout...:]

Are you guys sure LPHI is moving life settlement policies. I think what they are doing is creating Beneficial Interest (BI) policies. The large fees are the commissions on these policies that they are taking 50% of. In the settlement arena at IRRs of 9-13% we see $3M policies with Life Expectancies of 10 years going for maybe 20cents on the dollar. Thats only $600,000, and usually 70% will go to client. However in a $3M BI policy the client gets 2-3% of face and agents/brokers concentrate on the commissions.

I'm sure LPHI participates in Life settlements, but I don't think thats what's really driving their income.

Feb 13 09:12 AM

[User 86307:]

The citron information is very accurate as to the waco company. This company sells investors a short life expectancy created from there own shop . They make you see what they want you to see. The reason the game has gone on is that they have a another company that buys your fractional interest after your investment requires more money and your return that made you invest is no longer possible. Any company in this industry that continues to compile a legal track record for non compliance is dangerous. what happens to the investors when the insurance company does not pay because the policy was purchased illegally?

Feb 13 10:48 AM

[PROXIMO:]

Andrew Left's track record is far more important than opinions of his motives or character. And it is an EXTREMELY impressive record. For those who care---LPHI is tanking HUGE today, one day after this article was put on SA.

Feb 13 01:22 PM

[Knowledgeis...:]

This article holds half truths, at best. I am an active player in the industry. Every article I read is written by an outsider that has no idea what they are talking about. Especially when they mention "STOLI." That evil word in the industry...eewwww! Companies like Coventry try to pass BS legislation because it takes money out of their pocket. Note to Coventry: What is the difference between the the trillions of policies that you financed (and by the way are now buying back) and STOLI? Nothing! And how about the life companies that were so afraid of Life Settlements? Bet you wish you kept your mouths shut now, you broke bitches. Everyone should mind their business.

Feb 26 10:13 PM

[Knowledgeis...:]

Also - what makes LISA so special. They are the number one scammers in the industry. 6k a year for membership. Slap .org on the back of your website and you made people think that you were important. Great marketers, bad business people. Your big mouths are ruining the same industry that you think you are leading. All you do is publish negitive info and team up with lobbist to try and pass unwanted regulations. THIS DRIVES INTERNATIONAL MONEY AWAY!!! STOP IT!!!

Note to LISA: How are your renewals doing? The voice of the industry you are! You should have kept your voices down and maybe some Life Settlement companies could have afforded 09's subscription.

Feb 26 10:26 PM