Life Partner Holding Inc - LPHI

[Phoenix01]

I have started this new topic to discuss LPHI.  This stock has been shorted intensively and here is the link to an article that lists out the short position.

 

http://www.citronresearch.com/index.php/2005/10/21/stocklemon-reports-on-fairfax-financial/index.php?s=For+investors%2C+this+Life+Partner+might+not+be+good+for+you+%E2%80%A6&submit=Search

 

From my research, here are the counter arguements.  Please let me know if I have missed something!!!

 

Red Flag # 1. Egregious fees.

We believe Life Partners is charging their retail investor clients egregious fees.

***Clients are lining up and revenues are climbing.  This does not appear to be an issue.

 

Red Flag # 2. Are those fees sustainable?

***Clients are lining up and revenues are climbing.  This does not appear to be an issue.  LPHI was named No. 1 of the 100 Fastest-Growing Small Public Companies by FORTUNE Small Business Magazine

 

Red Flag # 3.  Management track record

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

***I have not found anything to support this claim.  The annual report is well written and provides transparency.

 

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.

***Attacking the accounting firm!!!  I have not looked into this.

 

Red Flag # 5.  Analyst coverage?

Interestingly enough only one firm “covers” Life Partners:  Taglich Brothers.

***Attacking the analysts covering the company!!!  I have not looked into this however the company has received the foll

 

Red Flag # 6.  Competition

Major competitors in the viatical settlement sector include: Maple Life, Peachtree, Coventry First, Life Settlement Solutions, and Life Equity.

***LPHI is not in the viatical settlement market.  See following link for better understanding of the company.

 

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

Life insurers are under enormous distress due to the financial crisis.

***LPHI does not hold the policies.  They are brokers that facilitate the secondary market for life insurance policies.  Part of their service is to make sure that the insurance provider is able and willing to pay out the policies.

 

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.

***The short argument against LPHI does not appear to be supported by fact.  LPHI does not require much capital to operate.  They have a diversified group of customers and their services are in demand.  The CEO owns over 50% of the stock, so this makes them a difficult business to take down.  During this economic downturn, they have survived the short and smear campaign and are still growing.  The macro trends are in their favour and the shorts will have to cover at some point.

 

[Phoenix01]

Corrected text!

 

Red Flag # 5.  Analyst coverage?

Interestingly enough only one firm “covers” Life Partners:  Taglich Brothers.

***Attacking the analysts covering the company!!!  I have not looked into this.

 

Red Flag # 6.  Competition

Major competitors in the viatical settlement sector include: Maple Life, Peachtree, Coventry First, Life Settlement Solutions, and Life Equity.

***LPHI is not in the viatical settlement market.  See following link for better understanding of the company.

http://www.executiveinterviews.com/U12682-lph-blus/

[ragnarisapirate]

I only researched the point raised, in regard to Brian Pardo's record; as it is the one that probably scares me the most.

 

1)"Life Partners' President Brian Pardo has scuffled with the SEC before. In 1989, the SEC filed a complaint against Pardo and his company Ask Corp. of Waco, charging him with falsifying financial reports to shareholders. Prado consented to the SEC's charges. By then, Ask Corp., a heating and air-conditioning company, already had filed for bankruptcy."

 

http://southflorida.bizjournals.com/southflorida/stories/1997/05/05/story7.html

 

2) "The Commission filed a Complaint on July 19 in the O.S. District Court for the District of Columbia against ASK Corporation and its chairman and chief executive officer, Brian

D. Pardo. The Complaint alleges that defendants violated the antifraud and reportingprovisions of the securities laws and that Pardo made false statements to ASK's audi-tors.

The Commission alleges that defendants materially overstated ASK's revenues and profitsfor the first three quarters in each of its 1983 and 1984 fiscal years, and the first two quarters in fiscal 1985 and that in connection therewith, defendants, in filingswith the Commission, new releases, and letters to shareholders, made material misrepre-sentations. (SEC v. ASK Corporation"

 

http://www.sec.gov/news/digest/1989/dig072089.pdf

 

 

3)As the icing on the cake, I found this little gem, with Pardo bitching about the evil short sellers way back in 1989... Keep in mind, that the short sellers were right that time.

 

"ASK Corporation (NASDAQ: ASKC) said it has documented evidence substantiating claims of short selling abuses made yesterday at Congressional Sub-Committee hearings delving into the subject.

 

ASK president, Brian D. Pardo, said professional short sellers operate in highly coordinated, well capitalized networks. The networks use a variety of tactics to manipulate and drive down the price of target company stocks."

 

http://www.highbeam.com/doc/1G1-7921042.html

 

Certainly, I am taking a pass on this one. Once, when I took an anti-trust economics class, I read a case study (or ten) that all seemed to get at the fact that companies which engage in fraud and monopolistic practices once, have a much higher chance than others of doing so in the future. That really stuck with me- I certainly apply it to the management of the companies that I invest in. Without knowing a thing about the other points raised, this one scares the hell out of me. All other facts equal, without the company trading at something absurdly low; say, 1/20th of book or at a 1x multiple of cash flow, I am not interested.

 

 

[bookie71]

they may be the best business, priced right etc - I just don't like their business model.  i would rather buy a tobacco company.

[twacowfca]

Why take a chance on this co in view of the past SEC record.  IMHO

this trumps everything.  If, despite all the red flags it turns out that the co is OK-- what have you lost?  There are plenty of other opportunities out there. Wait for another good pitch or one that's even better.

[Phoenix01]

Ragnarisapirate,

 

Thank you for the additional information.  I reviewed the links and the supporting documentation is quite spotty.  Considering that there is a smear campaign happening, each claim needs to be reviewed for its merits.  We have seen the shorts operate against FFH and this seems to be very similar.  If you run across anything that is factual, I would really appreciate knowing about it.

 

 

Bookie,

 

I wrestled with the morality of the business, but they are only on the buyer side of the transaction.  The seller side of the transaction is much more subject to abuse.  This is a thin line, but and important one.

 

 

Twacowfca,

 

This is the same thing that could have been said of Prem during the FFH smear campaign.

[Zorrofan]

This is the same thing that could have been said of Prem during the FFH smear campaign.

 

While the shorts did attack Prem, accusing him of all sorts of absurb things, the shorts allegations were found to be false. The SEC investigation into FFH found nothing. Ultimately Prem maintained his reputation for honesty and integrity. This seems to be a big difference to me.....

 

cheers

Zorro

[Guest HarryLong]

Gentlemen,

 

Have any of you gone to visit the company and met with management?

 

Has anyone tracked down the lawyers from the SEC who were involved with the ASK investigation?

 

It seems to me that, a la Peter Lynch, rather than debating how many teeth are in a horse's mouth from first principles, we might just look the horse in the mouth.

 

I'm just a simple boy from Texas, what do I know?

[lessthaniv]

In addition to doing your research on LPHI, I hope you make some time to understand who Citron Research is and their history! (formerly Stocklemon). Run by Andrew Left. Have a look at the garbage Stocklemon printed about Fairfax back in the day. That will give you an idea about how much research they actually do vs. regurgitating garbage from short biased hedge funds.

 

I haven't even pulled up a quote on LPHI so please don't interpret my words as an endorsement of LPHI as I don't have the slightest clue what they do. I simply quiver when I hear about Citron Research.

 

<IV

 

[beerbaron]

I'm not interested for completely different reasons.

 

I LOVE the business model, if you cancel a universal life insurance the issuer will probably give you pennies for every dollar it's worth. Great way of making a profit from insurance companies who ripped old clients.

 

What I don't like is the INSANE margins it offers, this screams for competition. There is no moat on this one, anybody with capital and a calculator can start an equivalent business. Rest assured that with those kind of margins it won't take long before intense competition appears from all side. Heck it's so profitable that I might start doing it myself!

 

So people beware if you look at the company and go "Wow 45% revenue growth + PE of 11" , the margins might shrink faster then you can think about it on this one.

 

From might point of view I see it as a high risk for my money, especially with the current BV.

 

BeerBaron

[twacowfca]

I am certainly no friend of Chanos et al , having suffered through their short attacks on several occasions not only with FFH, but also with USG over the years.  Both positions were ultimately redeemed with huge gains thanks to the integrity of their CEO's.

 

I fear that some posters are about to commit the same logical error that Chanos fell into when he tarred FFH with the same brush he used to expose the insurance fraud at Baldwin United early in his career.  On the surface there were similarities with major reserving issues, but Baldwin United stepped over the line and fraudulently concealed their true condition while FFH worked through their difficulties in a steadfast and ethical manner.

 

Likewise, the circumstance that a potential fraud has been spotted by the bad guys should not be used to whitewash the objective facts.  If the news report about consenting to an earlier SEC finding of fraud is true, run, don't walk to the nearest exit.

[Guest kawikaho]

In addition to doing your research on LPHI, I hope you make some time to understand who Citron Research is and their history! (formerly Stocklemon). Run by Andrew Left. Have a look at the garbage Stocklemon printed about Fairfax back in the day. That will give you an idea about how much research they actually do vs. regurgitating garbage from short biased hedge funds.

 

I haven't even pulled up a quote on LPHI so please don't interpret my words as an endorsement of LPHI as I don't have the slightest clue what they do. I simply quiver when I hear about Citron Research.

 

<IV

 

 

You should also include that Left has been sued a couple of times and have won these cases.  Others have made threats but never followed suit.  The SEC has never filed a formal investigation.  And if you have taken the opposite side of his trade, you would have lost in more than 90% of those trades.  I've tallied his track record since the dot com era, and I wouldn't want to be on the opposite end of his trades.  

 

During the stock lemon era, I did think his posts regarding dot com companies were spot on, since I worked in the industry in Silicon Valley at the time and knew how much red ink they were bleeding.  He targeted alot of shady OTC companies too.  I don't hold this guy in esteem, or think he's fraudulent or not. What I do know is majority of his shorts end down in the range of 50% or more.  Why take that kind of trade?  If enough people see lemons, and you see lemonade, people are going to argue that you're buying lemons and price it accordingly.  I would wait for LPHI to go lower if you want to get long.  In these short attacks, they almost always will.  

 

[Guest HarryLong]

Has anyone actually read LPHI's filings? Or bothered to visit them? I am dropping so many hints here.

 

I will offer a token prize: $30, to be paid by postal money order, to the first person who finds "something" in ANY of their SEC filings totally unrelated to life settlements and is able to affirmatively identify what PRECISELY it is on this message thread. That is the first hint.

 

This will be a test to see if anyone actually does any original research anymore, or just jawbones about people who do. I think it will separate the men from the boys to see who figures it out.

 

I am amazed no one else has found it yet. It fairly screams at you from the filings. Hint, hint, you actually need to read them, then make more inquiries.

 

Let's start counting the horse's teeth, rather than engaging in amateurish guesswork.

[twacowfca]

Fraudsters have a nasty habit of being serial offenders.  Madoff produced statements showing extraordinary returns 

in down markets within a year or two of first managing money.  Go back in time and check out the second career of the "reformed" Billy Sol Estes after he got out of " The Big House".  I have not researched this and the suspicion of wrongdoing could be unfounded, but cases involving fraud frequently go to zero and are complete losses at any price.

[oldye]

Has anyone actually read LPHI's filings? Or bothered to visit them? I am dropping so many hints here.

 

I will offer a token prize: $30, to be paid by postal money order, to the first person who finds "something" in ANY of their SEC filings totally unrelated to life settlements and is able to affirmatively identify what PRECISELY it is on this message thread. That is the first hint.

 

This will be a test to see if anyone actually does any original research anymore, or just jawbones about people who do. I think it will separate the men from the boys to see who figures it out.

 

I am amazed no one else has found it yet. It fairly screams at you from the filings. Hint, hint, you actually need to read them, then make more inquiries.

 

Let's start counting the horse's teeth, rather than engaging in amateurish guesswork.

Are you talking about the nearly half million dollars in the ceo's museum? I don't have any interest in this company but remember that was a little out of place when I looked over them 4-5 years ago. 

[twacowfca]

Gentlemen,

 

Have any of you gone to visit the company and met with management?

 

Has anyone tracked down the lawyers from the SEC who were involved with the ASK investigation?

 

It seems to me that, a la Peter Lynch, rather than debating how many teeth are in a horse's mouth from first principles, we might just look the horse in the mouth.

 

I'm just a simple boy from Texas, what do I know?

 

 

Good advice, but this would be an academic exercise for those not interested in that type of business.  It's tricky.  A number of sharp operators got burned buying policies from people who had AIDS several years ago and then lost their shirts when protease inhibitors were developed that greatly extended the lifespan of those with the illness. 

 

Mortality statistics show generally increasing life expectancies with occasional catastrophes such as the flu epidemic of 1917.

[SharperDingaan]

 

So he's been sued lots of times unsuccessfully & a lot of other suits didn't see the light of day. Do you really want to do business with someone who gets sued this much?

 

Then there's the honesty problem & the slimy business itself. If it really is as claimed he doesn't need my money, & a far better business will drive him out of the market. So why scratch fleas now, when I could invest via the much better business later?   

 

Don't need the smell thanks.

 

SD 

[Parsad]

Hi Harry,

 

Are you talking about their recently formed Life Settlement LP that they are offering as an exempt security to the general public?  That they are attempting to add the LP as an alternative investment class to equities, bonds or commodities?  Cheers!

[Guest HarryLong]

Has anyone actually read LPHI's filings? Or bothered to visit them? I am dropping so many hints here.

 

I will offer a token prize: $30, to be paid by postal money order, to the first person who finds "something" in ANY of their SEC filings totally unrelated to life settlements and is able to affirmatively identify what PRECISELY it is on this message thread. That is the first hint.

 

This will be a test to see if anyone actually does any original research anymore, or just jawbones about people who do. I think it will separate the men from the boys to see who figures it out.

 

I am amazed no one else has found it yet. It fairly screams at you from the filings. Hint, hint, you actually need to read them, then make more inquiries.

 

Let's start counting the horse's teeth, rather than engaging in amateurish guesswork.

Are you talking about the nearly half million dollars in the ceo's museum? I don't have any interest in this company but remember that was a little out of place when I looked over them 4-5 years ago. 

 

Oldeye--finally, someone who does research! OK, we're getting warmer. For the prize, what exactly is in the book room of their headquarters?

 

Parsad, good look on the LP. It is somewhat related to their main business, though.

[Guest HarryLong]

Typo, sorry, I meant "back room"

[Guest kawikaho]

Hi Harry,

 

Are you talking about their recently formed Life Settlement LP that they are offering as an exempt security to the general public?  That they are attempting to add the LP as an alternative investment class to equities, bonds or commodities?  Cheers!

 

Actually, I believe this is highly related to their line of business. 

[Parsad]

I have no interest in this company, but Harry's question intrigued me.  I can't find any real disclosure for "Artifacts/Other" going back as far as 2003.  Back in 2003, it was only valued at $87K, but today it's $871K! 

 

What do they have back there Harry?  I tried calling Investor Relations but the office is closed for the holidays.  Do they have troy ounces of gold, or a lock of Elvis' hair?  Or is this a mysterious asset that doesn't really exist?  Cheers!

 

 

[Guest HarryLong]

I want to give Olye a chance to answer (and anyone else who knows), but if no one can come up with it, I will let y'all know.

 

By the way, Parsad, I tried calling you earlier.

[Stone19]

Here is afew things that bother me.

 

 

We contract with ESP Communications, Inc., a corporation owned by Brian D. Pardo’s spouse, for post-settlement services.  The services included periodic contact with insureds and their health care providers through telephone calls and mailings, monthly checks of social security records to determine a insured’s status, and working with the independent escrow agent in the filing of death claims.  ESP also provides facilities and various administrative personnel to us.  Either party may cancel the agreement with a 30-day written notice.  We currently pay ESP $7,500 on a semi-monthly basis for its services.  During Fiscal 2009, we paid ESP $180,000.  The Audit Committee has determined that the payments are reasonable and equal to or less than amounts that would be payable to an unaffiliated third party for comparable service.

 

In June 2007, we purchased an aircraft and formed a wholly owned subsidiary, EZ Flight, LLC, to hold title to and operate the aircraft as well as hangar facilities for such aircraft.  After purchasing the aircraft, however, we determined that the accounting treatment would be more favorable and our internal controls would be more transparent and easier to administer if we did not own the aircraft, but had access to it and would reimburse the owner for the costs of our use. On December 12, 2007, our Chairman, Mr. Pardo, purchased the aircraft for the same price we paid and permits us to use the aircraft for business purposes.  We pay the incremental costs of our use, as described in applicable Federal Aviation Administration regulations (FAA Part 91, subpart F), which we believe is well-below the fair rental value for our use.  In Fiscal 2009, we paid $216,882 for such use.  We also provide hangar space to Mr. Pardo, the value of which we estimate at $13,500 per annum for each aircraft held in the hangar, which totals to $27,000.  The Audit Committee has determined that these arrangements are on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances.

 

Cheers

[oldye]

Mammoth museum!  Looks like they put another 110k into it in 2008.  

http://www.youtube.com/watch?v=A1tbsXU7NFE&feature=related