Life Partners Holdings Inc LPHI.O said a Texas judge ruled in its favor, saying the life settlement transactions it facilitates are not securities under the Texas law and denied the state attorney general's request to put the company into receivership.
Shares of the company more than doubled in value after the announcement of the ruling on Wednesday morning.
Legal troubles have wiped off as much as 77 percent of Life Partners' market capitalization since the start of the year when it was accused of an accounting fraud which overvalued assets on its books.
Texas Attorney General Greg Abbott sued the company last month, alleging that it made misrepresentations in the sale of life settlements.
The lawsuit sought the appointment of a receiver, and an order restraining the company from doing business.
The court ruling will allow Life Partners to pay a 10 cents per share dividend it had declared earlier this month, the company said in a statement.
Life settlement companies such as Life Partners buy insurance policies from people for a fraction of their value and continue to pay premiums, betting that they will eventually make a profit when the seller dies. The profit decreases if the person lives longer than expected.
Life Partners' stock, which touched a 10-year low last month, was up 90 percent at $2.78 in late morning trade, making it the top percentage gainer on the Nasdaq.
(Reporting by Aman Shah in Bangalore; Editing by Supriya Kurane)