U.S. judge clears Life Partners of fraud charge in SEC case

WASHINGTON, March 12 Wed Mar 12, 2014 7:11pm EDT

WASHINGTON, March 12 (Reuters) - A federal judge on Wednesday reversed a jury finding that Life Partners Holdings and its executives were liable on one count of fraud, dealing a blow to U.S. securities regulators.

The Securities and Exchange Commission had sought to prove that Life Partners intentionally misled investors over nearly four years about core aspects of its "life-settlements" business and that its two top executives engaged in insider trading.

In its verdict last month, an Austin, Texas-based jury in the federal court had cleared the company and its executives on eight of the 12 charges filed by the SEC, while finding Life Partners liable for fraud when it filed misleading statements about revenue recognition policies in two months in 2007.

Defense attorneys for the company asked U.S. District Court Judge James Nowlin to consider tossing out the claim. Federal district court judges have the right to consider reversing jury verdicts handed down before them if, after a trial, attorneys can justify it.

The Life Partners case has garnered national attention because of the company's unusual business of providing "life settlements" in which the holder of a life insurance policy sells the policy to an investor in exchange for a lump sum. The investor then assumes the responsibility for the premium payments and collects the payout on the policy once the insured individual dies.

In his order, Nowlin said the SEC had not provided any evidence at trial that Life Partners or its executives specifically violated fraud laws in January or February of 2007.

There was "simply too little to go on to support a finding against Defendants on Plaintiff's very narrow...allegation," he wrote.

The judge did, however, let stand the jury's decision to hold the company and its executives liable on several less serious charges involving bookkeeping, reporting and certification by the CEO on the company's financial statements.

Elizabeth Yingling, a lawyer for the company, said in an email: "Life Partners is very happy with this ruling."

SEC spokesman John Nester said the SEC is still "reviewing the decision." The agency added that it felt it had still prevailed on other substantial charges against the company

The reversal of the verdict comes at a time when SEC Chair Mary Jo White, a former federal prosecutor, is pledging that her trial unit will stand ready to take more cases to trial as part of a get-tough enforcement stance.

Despite her pledge, the SEC in recent months has suffered a string of losses that has dragged down its trial win rate.

In a separate victory for the SEC on Wednesday, a federal judge in New York ordered former Goldman Sachs Group Inc trader Fabrice Tourre to pay more than $825,000 after a jury last summer found him liable for defrauding investors in a subprime mortgage product that failed during the financial crisis.