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On June 6, Life Partners Holdings, Inc. (LPHI) announced that it had received a second Wells Notice from the Securities and Exchange Commission concerning data it had released to investors. The amended notice, which stemmed from potential inaccuracies in the estimated life expectancies of LPHI policyholders, said that SEC staff would recommend legal action against the company. LPHI stock fell four percent after the announcement, continuing a months-long decline. The company closed at $3.90 per share on Monday, and is down nearly 50 percent since the announcement of its first Wells Notice in May. Overall, the company’s stock has fallen nearly 78 percent since early December. With this combination of financial tailspin and possible SEC legal action facing LPHI, Lanny Davis, a lawyer, media specialist, and founder of Washington, DC-based Lanny Davis & Associates, says the company needs to focus on an effective crisis-management strategy. While Davis declined to comment on LPHI’s situation in particular, he recommends that a company in this situation take a three-pronged attack in doing so. First, he suggests the company hire an outside lawyer to serve as crisis manager. “In a company with multiple targets, each one will usually have different lawyers, who sometimes don’t share info with each other because of attorney-client privilege,” says Davis, a former special White House counsel to President Bill Clinton from 1996 to 1998. “Hire someone from outside who each of these lawyers reports to, who will have all of the facts, and develop an effective strategy. The next step, Davis says, is to verify those facts, and then to find reporters who will write all of them accurately and create a comprehensive, balanced story. Finally, the company and its lawyers have to find a solution. “It might be a winning hand that you litigate to the very end, or it might be a negotiation to come up with a plea bargain,” he says. “It depends on the facts you have.” The new Wells Notice named three LPHI executives in particular as focal points: CEO Brian Pardo, CFO David Martin, and general counsel R. Scott Peden. Since Wells Notices tend to target financial officers or CEOs and rarely name a company’s general counsel, Peden’s inclusion might seem unusual. But Charles Elson, chair of the John L. Weinberg Center for Corporate Governance at the University of Delaware, says it’s not unheard of. “It tends to happen most often in backdating cases,” Elson says. “It’s not very common – and as a lawyer, you don’t like to see it happen – but from time to time, it does.” Peden also serves as LPHI’s secretary and president of its subsidiary company, Life Partners, Inc. (LPI). But Elson says being targeted by a Wells Notice typically relates less to any one position within the company than to involvement in a potential offense. “When [the SEC] includes you on a Wells Notice, they have looked into it thoroughly and can usually conclude that you’ve played a relatively important role in something,” he says. As a secondary life insurer, LPHI buys life insurance policies from people who no longer need them – typically elderly or terminally ill people – and sells them at a discount. Whoever buys the policies pays the premiums on them and then collects the policy’s full payout when the insured person dies. The problem with inaccurate life expectancies – in particular, inaccurately short life expectancies, like LPHI is thought to have released – is that they can mislead potential buyers on how profitable their investments will be. The shorter the time a person lives, the more money an investor in that person’s policy stands to make. Thus far, LPHI has posted an anti-fraud public awareness campaign to both its own website and LPI’s. None of the executives named in the notice were available for comment at press time.

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