Lawsuit brought by a shareholder of Life Partners Holdings, Inc. on behalf of LPHI against the Board of Directors of LPHI, including Brian Pardo, Scott Peden, Fred Dewald, Tad Ballantyne and Harold Rafuse.

1. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 1 of 74 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS WACO DIVISION HARRIET GOLDSTEIN, Derivatively on § Case No. 6:11-CV-00158 Behalf of Life Partners Holdings, Inc. § § Plaintiff, § § vs. § § BRIAN D. PARDO, R. SCOTT PEDEN, § FRED DEWALD, TAD M. BALLANTYNE, § And HAROLD E. RAFUSE, § § Defendants, § § -and- § § LIFE PARTNERS HOLDINGS, INC., § § JURY TRIAL DEMANDED Nominal Defendant. § § VERIFIED STOCKHOLDERS’ DERIVATIVE COMPLAINT I. INTRODUCTION AND OVERVIEW OF THE ACTION 1. This is a stockholders’ derivative action brought on behalf of and for the benefit of Life Partners Holdings, Inc. (“Life Partners” or the “Company”) against Life Partners’ Board of Directors (the “Director Defendants”), and certain executives, for breaches of fiduciary duty arising from their gross and reckless mismanagement, and acts of corporate waste, in connection with Life Partners’ questionable business practices, specifically those relating to the determination of life expectancies and the Company’s practice of charging egregious fees on their transactions. The Director Defendants caused or allowed Life Partners to engage in repeated and persistent questionable business practices which resulted in the Securities and

2. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 2 of 74 Exchange Commission (“SEC”) to issue a “Wells Notice” (and a subsequent amended Wells Notice expanding the scope of the SEC’s initial inquiry) which indicates the agency’s staff plans to recommend that civil charges be filed against the Company and certain executives related to, among other things, Life Partners’ life expectancy estimates, its revenue recognition policies, the impairment of life settlements held by the Company for investment, and its policy for premium advances the Company might make on certain client policies. Moreover, Life Partners’ business practices have led to several lawsuits against the Company by investors under the federal securities laws and by persons who were damaged by purchasing or acquiring life settlements pursuant to various state law causes of action including, among others, fraudulent inducement, negligent misrepresentation and common law fraud. . 2. Life Partners, through its subsidiary, Life Partners, Inc. (“LPI”), operates in the secondary market for life insurance, generally known as “life settlements,” which involves the sale of an existing life insurance policy of one person (the “policyholder”) to another unrelated party. By selling the policy, the policyholder receives an immediate cash payment to use as he or she wishes. Likewise, the purchaser takes an ownership interest in the policy at a discount to its face value and, as a result, receives the policyholder’s ownership interest in the death benefit under the policy when the insured dies. The Company acts as a purchasing agent for the life settlement purchasers and, in this capacity, identifies, qualifies and purchases policies on behalf of its clients that match their buying parameters and return expectations. Its operating revenues are derived from the fees it charges for facilitating these life settlement transactions between the sellers and purchasers. Since its incorporation in 1991, Life Partners claims to have completed over 127,000 transactions for its client base in connection with the purchase of over 6,400 policies totaling approximately $2.8 billion in face value. 2

3. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 3 of 74 In 2009, questions began to surface concerning the methodology the Company used in calculating the life expectancies and it affect on the Company’s financial statements. For example, on February 11, 2009, a research firm, Citron Research, published an article that called into question, among other things, the issues of how Life Partners determined life expectancies of policyholders, which has a crucial bearing on the purchase price in a “life settlement” transaction and its practice of charging exorbitant fees on these transactions. In response to the report, defendant Brian D. Pardo (“Pardo”) issued an open letter to the Company’s shareholders stating that the report “contained inaccurate assumptions, misinformation and erroneous facts about our company,” and that the Company “vehemently disagree[d] with the conclusions reached by the author of the report and believe strongly that our business model will continue to demonstrate the sustainable growth we have exhibited over the last 18 years.” Almost two years later, on December 21, 2010, The Wall Street Journal published an article also questioning the Company’s life-expectancy estimates and business practices, noting that Life Partners “has made large fees from its life-insurance transactions while often significantly underestimating the life expectancies of people whose policies its customers invest in.” In particular, the article emphasized that the Company relied solely on life expectancy calculations provided by a doctor in Reno, Nevada, who is paid a monthly retainer by Life Partners, and that an analysis of his calculations shows that he regularly provides the Company with estimates that are significantly shorter – hence, more profitable for the Company – than calculations provided by independent firms. Approximately one month later, on January 20, 2011, The Wall Street Journalpublished an article disclosing that the SEC was investigating Life Partners’ business practices, 3

4. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 4 of 74 particularly how it estimated the life expectancies. According to the article, investigators were probing allegations that the data used by Life Partners may be inaccurate, with many of the insured people living longer than the original estimate – casting doubt on Life Partners’ claims of returns of as much as 15% to purchasers of policies. Later that same day, the Company issued a press release in which it confirmed that the SEC was conducting an investigation into the business of LPI. On this news, shares of Life Partners declined by $2.52 per share, more than 17%, to close on January 20, 2011, at $12.17 per share, on unusually high volume, and further declined another $0.63 per share, more than 5%, to close on January 21, 2011, at $11.54 per share, also on unusually high volume. One week later, on January 27, 2011, The Wall Street Journal published another article revealing that Life Partners had drastically changed how it would market its products to purchasers. According to the article, Life Partners would now market their product as having an estimated return of 7% over seven years, instead of the targeted 12% to 14% annual returns over shorter periods, typically four to six years, it had previously promoted. On this news, shares of Life Partners declined by $1.14 per share, 9.60%, to close on January 28, 2011, at $10.70 per share, on unusually high volume. Thus, throughout the relevant period, the Director Defendants caused the Company to make false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, the Director Defendants made false and/or misleading statements and/or failed to disclose: (1) that the Company had routinely used unrealistic life expectancy data that produced inaccurately short life expectancy reports, which were subsequently used to sell life settlement policies to investors; (2) 4

5. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 5 of 74 that the Company had purposely concealed the historical rate in which individuals insured by life settlement policies sold by Life Partners had lived past the life expectancy rates previously provided to investors, such that the Company’s investors were unable to assess the accuracy or reliability of such data; (3) that by underestimating the life expectancy data to investors, the Company was able to charge substantially larger fees when brokering life settlement policies; (4) that the Company’s revenues had been significantly increased through the employment of such business practices; (5) that, as a result, the Company’s financial statements were false and misleading at all relevant times; (6) that such business practices, when they were discovered, would initiate an investigation by the SEC into the Company’s business practices; (7) that the Company lacked adequate internal and financial controls; and (8) that, as a result of the foregoing, the Company’s statements about its financial well-being and future business prospects were lacking in any reasonable basis when made. The Director Defendants failed to take necessary corrective measures, despite their knowledge of the serious, long-standing practice of under estimating the life expectancy of people it buys policies from. During the relevant period of wrongdoing, which began in at least 2007 (the “Relevant Period”), the Director Defendants also caused numerous filings to be made with the SEC, which concealed from the investing public its wrongful business practice and the consequent risks to Life Partners. Life Partners and defendant Pardo also have been named as defendants in several shareholder class action lawsuits alleging violations of the federal securities laws for disseminating misleading statements to investors, policyholder class actions alleging fraud and breach of contract, and at least one complaint for violations of the Racketeer Influenced and Corrupt Organization Act (“RICO”). In addition, following its investigation, the 5

6. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 6 of 74 SEC issued a Wells Notice to the Company recommending that it bring a civil injunctive action against Life Partners and defendants Pardo and R. Scott Peden (“Peden”), for violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(a) of the Securities Exchange Act of 1934. On June 6, 2011, Life Partners announced that it received an amended Wells Notice on June 3, 2011 expanding the scope of the recommendation for the civil action. The amended Wells Notice also includes allegations about the Company’s disclosures regarding the propriety of certain accounting policies and practices, including revenue recognition, the impairment of life settlements held by Life Partners for investment and the stated policy for premium advances the Company might make on certain client policies. The expanded Wells Notice also adds to the initial notice David A. Martin (“Martin”), Life Partners’ Chief Financial Officer since 2008, as another target of the investigation as well as Section 13(b)(2)(A) and B of the Securities Exchange Act as additional claims. These various lawsuits and regulatory actions will cause Life Partners and its shareholders to suffer additional injury and damages. The Director Defendants’ dereliction of their duties and grossly reckless mismanagement has been disastrous for Life Partners and Life Partners’ shareholders. Life Partners’ shareholder equity and its common stock market capitalization have plunged as a result of the Company’s illegal conduct. Additionally, as a result of the Company’s wrongful business practices, on May 31, 2011, the Company disclosed that it had encountered unanticipated delays in completing its annual report because of a “re-examination of our revenue recognition policies with our independent auditor.” This unexpected disclosure comes on the heels of the Company’s Form 12b-25, notification of late filing, which was filed with the SEC on May 16, 2011, requesting a 6

7. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 7 of 74 delay in the filing of its annual report while management reassesses the value of its life policies it holds for its own portfolio. According to the filing, the Company estimated that it would take an impairment charge of about $8 million, some of which will apply to prior quarters. Additionally, while the stock price was artificially inflated, defendant Pardo’s Pardo Family Holdings Ltd. sold over $7.5 million of stock based on knowledge of material, non-public information concerning Life Partners’ business practices and improper statements. In addition, Peden sold over $300,000 of his personally held stock based on knowledge of material, non-public information concerning Life Partners’ business practices and improper statements. At the same time, the Director Defendants have been elected and re-elected to their positions of power, prestige and profit by means of false and misleading statements in the Company’s SEC filings and received millions of dollars of compensation by unjust payments and stock awards. The Director Defendants owed the Company and its stockholders the fiduciary obligations of candor, fidelity, trust, and loyalty. They were required to oversee Life Partners’ affairs in a fair, just and equitable manner to prevent violation of laws, to act in furtherance of the best interests of Life Partners and its stockholders, and not to act in furtherance of their own personal interests. In addition, each of the Director Defendants owed Life Partners the duty to exercise due care and diligence in the management and administration of the Company’s affairs and in the use and preservation of its property and assets. In violation of their fiduciary duties, the Director Defendants permitted the Company to conduct its business in an unsafe, imprudent and dangerous manner by pursuing unsound and illegal practices, including those specified in this Complaint, thereby wasting its assets. The conduct of the Director Defendants complained of herein involved a knowing and culpable violation of their duties and obligations as corporate directors, an absence of good 7

8. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 8 of 74 faith or business judgment on their part, and an intentional or reckless disregard for their fiduciary duties to the Company and its public stockholders. The Director Defendants were aware of, or should have been aware of, the risk of serious damage to the Company caused by: (1) using questionable and inaccurate short estimates for how long the insured people are likely to live, a key part of the investment equation and (2) the improper artificial inflation of the Company’s financial condition and its stock price. The Director Defendants ratified and/or endorsed the ongoing inappropriate business practice and violations of law complained of herein, and the conduct of Life Partners’ officers and employees resulting in the issuance of a Wells Notice to the Company by the SEC (and a subsequent amended Wells Notice expanding the scope of the SEC’s investigation) and being sued by both investors in the Company as well as purchasers of the life settlements. That ratification and/or endorsement involved a knowing and culpable violation of the Director Defendants’ obligations as corporate directors, an absence of good faith on their part, and a reckless disregard for their fiduciary duties to the Company and its public shareholders. The Director Defendants were aware of, or pursuant to reasonable inquiry should have been aware of, the ongoing inappropriate business practices and violations of law in which Life Partners was engaging and the risks of serious injury to the Company as a result of inappropriate business practices. The Director Defendants’ conduct caused Life Partners to waste its valuable assets when it was forced to restate its financial statements and to disseminate publicly false and misleading information in violation of the federal securities laws. As alleged in greater detail below, the Director Defendants are implicated in and legally responsible for the wrongdoing complained of herein. The Director Defendants are thus interested and lack independence with respect to the wrongs complained of and the underlying 8

9. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 9 of 74 conduct is not subject to business judgment protection. Further, the Director Defendants, by virtue of pending litigation, would necessarily be forced to reject any demand by plaintiff that any of the Director Defendants prosecute this derivative action to avoid incurring personal liability. Thus, any such demand by plaintiff would be futile. II. JURISDICTION AND VENUE This derivative action is brought pursuant to Rule 23.1 of the Federal Rules of Civil Procedure (“F.R.C.P.”). This Court has jurisdiction under 28 U.S.C. §1332(a)(1). Plaintiff is a resident of the State of New Jersey and, as set forth in paragraphs 24 through 30 no defendant is a citizen of that state. The amount in controversy between the plaintiff and the defendants exceeds $75,000, exclusive of interest and costs. This is not a collusive action to confer jurisdiction on this Court which it would not otherwise have. Venue is proper in this District pursuant to 28 U.S.C.§1391(a) because many of the acts and transactions giving rise to the violations of law complained of herein, including the improper conduct by Defendants and the preparation and dissemination to the investing public of false and misleading information, occurred in this District. III. THE PARTIES A. Plaintiff 23. Plaintiff Harriet Goldstein, a resident of the State of New Jersey, is a current shareholder of the Company, was a shareholder at the time of the misconduct complained of herein, and intends to continue to hold Life Partners shares at least through the resolution of this action. 9

10. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 10 of 74 B. Defendants Nominal defendant Life Partners is a Texas corporation headquartered in Waco, Texas. According to its public filings, Life Partners describes itself as a financial services company and the parent company of Life Partners, Inc. (“LPI”), one of the oldest and most active companies in the United States engaged in the secondary market for life insurance known generally as “life settlements.” Life Partners may be served with process through its Registered Agent, R. Scott Peden, at 204 Woodhew Drive, Waco, Texas 76712. 1. The Board of Directors Life Partners’ Board maintains two standing committees on which the directors serve: (1) the Audit Committee and (2) the Compensation Committee. During the fiscal year ending on February 28 2010, the Board met once and acted seven times by written consent. In addition, during this period, the Compensation Committee met twice and the Audit Committee met five times. Defendant Pardo has served as Chairman of the Board, President and Chief Executive Officer of the Company since 2000 and, during all relevant times, was the Chief Executive Officer of LPI, the Company’s primary operating subsidiary. In fact, he has served as the CEO of LPI since its incorporation in 1991. Pardo has also served as a director of the Company since 2000. He signed the Company’s Form 10-K for the fiscal years ended February 28, 2010. For fiscal year 2010, Pardo has received more than $1.061 million in compensation – including salary, bonuses and other forms of compensation – for his service as a director of the Company. As of June 11, 2010, Pardo beneficially owned 7,499,999 shares of the voting stock (50.3%) with the voting power to determine elections. Therefore, he is a controlling shareholder 10

11. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 11 of 74 of the Company. Defendant Pardo is a citizen of Texas. Pardo may be served with process at 908 Arlington Drive, Woodway, Texas 76712-3205. Defendant Peden has served as the General Counsel and Secretary of the Company and President of LPI since 2000. Prior to 2000, Peden served as Vice President and General Counsel of LPI since its incorporation in 1991. Peden has served as a director of the Company since 2000. Peden signed the Company’s Form 10-K for the fiscal year ended February 28, 2010. In fiscal year 2010, Peden has received more than $648,000 – including salary bonus and other compensation – for his service as President and general counsel of LPI and as a director of the Company. Defendant Peden is a citizen of Texas. Peden may be served with process at 1117 Charing Cross Drive, Woodway, Texas 76712. Defendant Fred Dewald (“Dewald”) has served as a director of the Company since 2003. In addition, Dewald is currently a member of both the Compensation Committee and Audit Committee. Dewald signed the Company’s Form 10-K for the fiscal year ended February 28, 2010. In fiscal year 2010, Dewald received $28,750 in director fees (two quarterly payments of $6,250 and two quarterly payments of $8,125 following an increase in director fees) and reimbursement of expenses incurred in attending Board and Committee meetings – for his service as a director of the Company. Defendant Dewald is a citizen of Texas. Dewald may be served with process at 428 Riverview Drive, Woodway, Texas 76712-7606. Defendant Tad M. Ballantyne (“Ballantyne”) has served as a director of the Company since 2001. In addition, Ballantyne is currently serving as the chairperson of the Audit Committee and is a member of the Finance Committee. Ballantyne signed the Company’s Form 10-K for the fiscal year ended February 28, 2010. For fiscal year 2010, Ballantyne has received $28,750 in director fees and reimbursement of expenses incurred in attending Board and 11

12. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 12 of 74 committee meetings for his service as a director of the Company. Defendant Ballantyne is a citizen of Wisconsin. Ballantyne may be served with process at 5118 Hunt Club Road, Racine, WI 53402-2333. Defendant Harold E. Rafuse (“Rafuse”) has served as a director of the Company since 2006. In addition, Rafuse is currently serving as chairperson of the Compensation Committee and is a member of the Audit Committee. Rafuse signed the Company’s Form 10-K for the fiscal year ended February 28, 2010. In fiscal year 2010, Rafuse received $28,750 in director fees and reimbursement of expenses incurred in attending Board and Committee meetings for his service as a director of the Company. Defendant Rafuse is a citizen of Texas. Rafuse may be served with process at 111 Laurel Oaks Lane, Crawford, Texas 76638-2767. Defendants Pardo, Peden, Dewald, Ballantyne and Rafuse comprise the current directors on the Board, and are collectively referred to as the “Director Defendants.” Each non-employee director in fiscal year 2010 received two quarterly payments of $6,250 and two quarterly payments of $8,125 following an increase in director fees. Non-employee directors do not receive meeting fees for Board or Committee meeting attendance. These directors are not provided with any insurance, retirement or other benefit programs or other benefits as prerequisites. The Company reimburses all directors for their reasonable expenses incurred in attending Board and Committee meetings. The Company does not provide equity compensation for the non-employee directors. IV. THE FIDUCIARY DUTIES OF LIFE PARTNERS’ BOARD Under Texas law, Life Partners’ directors have certain fiduciary duties to the Company and its shareholders, including the duties of loyalty and care. To discharge their legal duties, the Director Defendants were required to exercise reasonable and prudent supervision 12

13. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 13 of 74 over the Company’s management, policies, practices, controls, and financial affairs. Pursuant to their fiduciary obligations, the Director Defendants were required to use the same care and diligence as would an ordinary prudent person in a similar position. By virtue of this obligation, the Director Defendants were required to, but failed to, among other things: To set up protocols and procedures to properly monitor that the Company adheres to sound business practices when determining life expectancy estimates; To ensure that proper policies and procedures are in place and adhere to Life Partners’ revenue recognition polices and to ensure that the Company’s revenue recognition policies are consistent with and compliant with General Accepted Accounting Principles; To set up protocols and procedure for a regulatory compliance program to ensure compliance with the laws and regulations applicable to viatical and senior life settlement companies; To undertake a proper and adequate investigation and evaluation of the Company’s dissemination of information to the public to ensure that Life Partners was not violating the federal securities laws; To prevent the waste of Life Partners’ valuable assets and to manage, conduct, supervise and direct the business and affairs of Life Partners carefully, prudently and in good faith, in accordance with the laws, rules and regulations of the State of Texas, and the Articles and by-laws of Life Partners; To exercise necessary control and supervision over the officers and employees of Life Partners and LPI, especially those responsible for making sure that the 13

14. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 14 of 74 Company used proper and reasonable estimates of the life expectancy of people it buys polices from; To establish guidelines and policies to govern adequately the structure and organization of the Company’s operations, including its financial and disclosure practices; Neither to violate, nor knowingly or recklessly permit any officer, director or employee of Life Partners to violate applicable federal rules and regulations, including SEC requirements; Upon receiving notice or information of the use of unreasonable estimates of the life expectancies of people it buys polices from, to make a reasonable investigation in connection therewith, and to take all necessary steps to correct that practice; To establish and to maintain systematic and accurate books and records regarding the business affairs of Life Partners and to implement procedures for the reporting of the business affairs to the Board of Directors and periodically to investigate, or cause an independent investigation to be made of, Life Partners’ books and records; To implement and maintain an adequate and functioning system of internal management information systems such that Life Partners’ assets would be safeguarded, its financial statements and information would be accurately recorded and reported, and its corporate managers would be given prompt notice of serious problems or divergences so that risk to the Company would be minimized; 14

15. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 15 of 74 To supervise the preparation and filing of any audited financial statements, reports and other information required by law from Life Partners, including the Company’s SEC Forms 10-K, 10-Q, and 8-K, annual reports and proxy materials, and to make full and accurate disclosures of all material facts concerning, inter alia, each of the subjects and duties set forth above; To ensure that Life Partners did not engage in unsafe, imprudent or unsound practices and to become and remain informed as to how Life Partners was, in fact, operating; and To refrain from obtaining personal benefit at the expense of Life Partners and its public shareholders. 34. In addition, Life Partners’ foundational corporate documents (such as the Audit Committee charter and Life Partners’ Code of Ethics for Directors & Executive Officers) also expressly detail the Board’s duties requiring, inter alia, that the Board must actively identify and root out unlawful and/or unethical business practices within the Company, must report and prevent such misconduct, and must disclose any deviation from strict performance of these obligations. In addition, according to the Company’s June 2010 Proxy Statement, the Audit Committee is specifically charged with and responsible in taking the lead in overseeing enterprise risk management by (i) timely identifying the material risks that the Company faces, (ii) communicating necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant Board Committee, (iii) implementing appropriate and responsive risk management strategies consistent with our risk profile, and (iv) integrating risk management into decision-making. In this capacity, the Audit Committee is required to make periodic reports to the Board regarding briefings provided by management and advisors as well 15

16. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 16 of 74 as the Committee’s own analysis and conclusions regarding the adequacy of the Company’s risk management processes. In addition to the formal compliance program, the Board is required to encourage management to promote a corporate culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations. The Board also should work, with the input of the Company’s executive officers, to assess and analyze the most likely areas of future risk. Life Partners’ wrongful business practices and improper revenue recognition policies – which resulted in the Company receiving a Wells Notice from the SEC, and an amended Wells Notice on June 3, 2011 and several lawsuits by shareholders for violations of the federal securities law and by policyholders for various violations of state common law such as fraud and negligent misrepresentation – are completely inconsistent with the fiduciary duties that all Life Partner directors and senior management undertake as a condition to accepting their prestigious and well-paying positions with the Company. V. FACTUAL BACKGROUND AND THE UNLAWFUL CONDUCT A. Life Partners’ Business Life Partners is a specialty financial services company and the parent company of LPI. LPI is the oldest and one of the most active companies in the United States engaged in the secondary market for life insurance known generally as “life settlements,” which involves the sale of an existing life insurance policy of the policyholder to another unrelated party. By selling the policy, the policyholder receives an immediate cash payment to use as he or she wishes. Correspondingly, the purchaser takes an ownership interest in the policy at a discount to its face value and, as a result, receives the policyholder’s ownership interest in the death benefit under the policy when the insured dies. 16

17. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 17 of 74 LPI facilitates the sale of life settlements between the sellers and purchasers, but does not take possession or control of the policies. Rather, it identifies, qualifies and purchases policies on behalf of its clients that match their buying parameters and return expectations. The Company locates potential policy owners through a network of life settlement brokers and, to a lesser extent, through insurance, financial and estate planning professionals, through personal referrals and through Internet and print media advertising. Brokers are typically compensated based on a percentage of the face value of the policy sold and this amount is negotiated between the policyholder and the broker. This compensation is paid upon the closing of a settlement. To meet market demand and maximize the Company’s value to its clients, Life Partners made significant investments in proprietary software and processes that enable it to facilitate a higher volume of transactions while maintaining quality controls. The Company categorizes its purchasers of life settlements as either institutional or retail. Institutional purchasers are typically investment funds designed to acquire and hold life settlements. From the beginning of fiscal year 2008, Life Partners acted as the purchasing agent for one institutional fund, in which the Company had a $6.5 million investment as of February 28, 2010. This institutional fund has acquired policies through the Company having a face value of $278 million – accounting for 1%, 8% and 7% of Life Partners total revenues in fiscal 2010, 2009 and 2008, respectively. The majority of Life Partners’ clients, however, are high net worth individuals. To purchase a life settlement, a prospective retail purchaser typically submits a purchaser application, as well as affirmative representations establishing the purchaser as financially sophisticated. A purchaser will also submit an agency agreement and special power of attorney, which appoint the Company as a limited agent of the purchaser to act on his or her 17

18. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 18 of 74 behalf in purchasing a life settlement. Unless specifically waived by a purchaser, the agency agreement limits the Company’s authority to facilitate the sale of policies issued by an insurance carrier having an A.M. Best Company rating of B+ or better and to policies beyond their contestable period (generally two years or older). For most of the policies that Life Partners brokers on behalf of its clients, the insureds have a life expectancy of between 48 months and 60 months, although the Company can identify policies with longer life expectancies or other purchasing parameters if requested. The Company distributes insurance and current medical status information on these policies throughout the Company financial planner network. The Company makes available to each purchaser, through their financial planner, standard disclosures discussing the nature and risks of making a life settlement purchase. Purchasers can then, in consultation with their financial planner or other professionals, select one or more policies, specify the portion of the policy or policies to be purchased and submit a reservation electronically. To diversify their positions, retail purchasers generally buy fractional interests in one or more policies and not an entire policy, while institutional purchasers tend to purchase entire policies. 40. In fact, with respect to the purchase of a life settlement and the expected life expectancies of the insured, the following was noted in the Company’s most recent Form 10-K, filed with the SEC on May 12, 2010: For most of the policies that we broker on behalf of our clients, the insureds have a life expectancy of between 48 months and 60 months, although we can identify policies with longer life expectancies or other purchasing parameters if requested by our clients. As we identify and qualify policies, we distribute insurance and current medical status information on these policies (with the insured’s name and other identifying information redacted) throughout our financial planner network. . . . Purchasers can then, in consultation with their financial planner or other professionals, select one or more policies, specify the portion of the policy or policies to be purchased and submit a reservation electronically. To diversify their positions, retail purchasers generally buy fractional interests in one or more 18

19. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 19 of 74 policies and not an entire policy, while institutional purchasers tend to purchase entire policies. After closing the transactions, the Company generally holds title to the policy as nominee for the purchaser. Responsibility for policy premium costs passes to the purchaser, who typically funds the premium costs from the deposits with the escrow agent. A purchaser will receive evidence of the transfer of ownership of the policy (which identifies the insured), but will not receive contact information for the insured. The Company also performs certain ministerial functions, such as monitoring the insureds health status and notifying the escrow agent upon the insured’s death. LPI was incorporated in 1991 and has conducted business under the registered service mark “Life Partner” since 1992. Its operating revenues are derived from the fees it charges for facilitating these life settlement transactions between the sellers and purchasers and since its incorporation in 1991, Life Partners claims to have completed over 127,000 transactions for its client base in connection with the purchase of over 6,400 policies totaling approximately $2.8 billion in face value. The following table shows the number of life settlement policies the Company transacted, including the aggregate face values and purchase price of the policies and revenues generate during fiscal years 2008 through 2010: 1 The revenues derived are exclusive of brokerage and referral fees. 19

20. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 20 of 74 B. The Life Settlement Market Life settlements provide a secondary market for existing life insurance policies that the owner no longer needs or wants and that insure a person whose life expectancy can be reasonably estimated. From the early 2000s and through 2007, the market for life settlements grew substantially from both the demand and the supply sides of the transactions with an increase in the average face amount of policies presented for sale. The larger amount of capital required to meet the higher acquisition costs of the average life settlement led Life Partners to seek relationships with institutional purchasers in addition to expanding its base of retail clients and increasing the minimum investment amount. According to the Company, it has devoted substantial marketing and client development resources to attracting both individual and institutional purchasers, both directly and through its advisors. The number of retail purchasers and the amount of their average investment has increased over the last three fiscal years, providing Life Partners with a significant market advantage by enabling the Company to reach the diversification goals of its clients as well as giving it greater flexibility in purchasing policies. Institutional purchasers, on the other hand, have played a less significant role in Life Partners’ business. For example, in the fiscal years 2010, 2009 and 2008, Life Partners had one institutional purchaser that accounted for 1%, 8%, and 7% of its revenues, respectively. The Company, however, continues to seek institutional opportunities. In a 2009 report, the insurance research group, Conning & Co. (the “Conning Report”), estimated that the life settlement industry completed $12 billion in face value of transactions in 2007 and $11.8 billion in 2008. Based on the Company’s research from other providers, publicly reported data and estimates based on historical data, Life Partners estimated 20

21. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 21 of 74 the total amount of face value of transactions completed by the life settlement industry in 2009 was $7.3 billion. The Conning report attributed the decline in market size from 2007 to 2008. C. The Board’s Approval of The Manipulation of Life Expectancy Rates According to the December 21, 2010 Wall Street Journal article, Life Partners’ business model relies on a single doctor, Dr. Donald T. Cassidy (“Dr. Cassidy”), to determine the life expectancies of insureds. Dr. Cassidy has confirmed that he reviews case histories a mere three days a week for Life Partners, which has sent him 100 to 200 cases weekly, translating to thirty-three to sixty-six cases per working day and eleven to twenty-two per hour. Dr. Cassidy has said in a court case that he never checks the accuracy of his prior predictions. In addition, Dr. Cassidy has an incentive to provide life expectancy rates quickly and with short life expectancies because he purportedly receives $500 for every policy bought by Life Partners’ clients. This amount is on top of the $15,000 monthly retainer the Company pays Dr. Cassidy. For this part-time work, Dr. Cassidy has made more than $1.3 million since 2002. The accuracy of Dr. Cassidy’s life expectancy rate predictions are a key and material factor to the Company’s business. An analysis of Dr. Cassidy’s life expectancy calculations, however, indicates that he regularly provides Life Partners with estimates that are significantly and consistently too short. In fact, The Wall Street Journal compared the life expectancy rates of twenty individuals as projected by Life Partners (i.e., Dr. Cassidy) against independent firms specializing in such estimates. The comparison found the independent firms’ life expectancy estimates were greater by 50% to 100%. For instance, in 2002, Life Partners brokered investments in 297 life policies. According to The Wall Street Journal, actuaries say if life-expectancy calculations on a sample of people are done well, then half should die by their projected dates. However, Life Partners’ life expectancy estimates were too short 95% of the 21

22. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 22 of 74 time in 2002. This was hardly an isolated episode as policies brokered after 2002 also showed similar patterns. Indeed, Defendant Pardo has even explicitly admitted that many of Life Partners’ life expectancy rates “are probably wrong.” Experts have also recently expressed serious doubts about Dr. Cassidy's ability to complete such a high volume of life expectancy reports over such a short period of time. For example, Anna Hart, an underwriter with ARHart Consulting, reportedly stated "It's one every nine minutes .... It takes me an hour to an hour and a half to look at every [medical record]. I don't see how it's possible." The Director Defendants, however, forced the Company to rely on unrealistic projections provided by Dr. Cassidy. Thus, by presenting investors with shorter life expectancies based solely on Dr. Cassidy's specious calculations, the Director Defendants successfully peddled life settlements to more investors at higher rates while steadily increasing the revenue flowing into the Company. Based on the direct result of the questionable use of the Company’s expectancy estimates, Life partners is the subject of two Well’s Notices and likely enforcement action by the SEC, multiple class actions by investors and policyholders, and is now reexamining its revenue recognition policies. D. The Boards Approval of the False and Misleading Statements to Investors Under the Company’s Code of Ethics For Directors And Executive Officers (the “Code”), which has been in effect since May 28, 2004, the Director Defendants are required to “[p]rovide full, fair, accurate, timely, and understandable disclosure in the Company’s public communications, including reports and documents that the Company files with, or submits to, the SEC.” Moreover, the Code requires the Directors Defendants to “[c]omply with applicable governmental laws, rules, and regulations.” 22

23. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 23 of 74 51. In addition, under the Audit Committee’s Charter, the Board is required to: Regulatory Compliance: Cause to be maintained an appropriate regulatory compliance program covering the Company and its subsidiaries to aid compliance with the laws and regulations applicable to viatical and senior life settlement companies. Review reports of the compliance officer covering the scope and adequacy of the compliance program, the degree of compliance and cooperation, and the implementation of corrective actions (if necessary or appropriate). Internal Controls and Procedures: Review periodically the scope and implications of the Company’s internal financial controls and procedures and consider their adequacy. 52. The Director Defendants breached their fiduciary duties of care, good faith, and loyalty owed to Life Partners by failing to insure that the Company’s public statements fairly presented, in all material respects, the Company’s operations and financial condition, including accurate information regarding Life Partners life expectancy rates. In order to adequately carry out these duties, it is necessary for the Director Defendants to know and understand the material, non-public information to be either disclosed or omitted from the Company’s public statements. 53. The Director Defendants had ample opportunity to discuss the Company’s life expectancy rates with management and fellow directors at Board meetings. Despite these duties, the Director Defendants recklessly, and/or intentionally caused by their actions or inactions, the following improper statements, including financial statements, to be disseminated by Life Partners to the investing public and the Company’s shareholders. 54. On May 29, 2007, the Company issued a press release announcing financial results for fiscal year ended February 28, 2007. Therein, the Company, in relevant part, stated: 23

24. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 24 of 74 Life Partners Holdings, Inc. (NASDAQ GM: LPHI), parent company of Life Partners, Inc., today announced a 218% increase in net income for its 2007 fiscal year ended February 28, 2007. The Company reported net income of approximately $3.6 million or $0.39 per share compared to $1.14 million or $0.12 per share reported for its 2006 fiscal year. Life Partners also reported a 48% increase in revenues for the 2007 fiscal year while total business volume, as measured in policy face values transacted, increased by 73% over last year to $151 million. Income from operations for fiscal 2007 increased by almost 150% to $4.8 million or 16% of revenues, compared to $1.9 million or 9.5% of revenues last year. Life Partners reported 2007 pre-tax income of $4.7 million compared to pre-tax income of $2 million for 2006. Life Partners Chief Executive officer, Brian Pardo, stated, “As we previously reported, we are exceptionally pleased with these results and the growth in our revenues and net income. These results demonstrate our ability to dramatically grow the company within the fastest growing sector of the financial services industry. We are confident we will produce equally impressive growth results for the first quarter of the current fiscal year and we’re expecting great things during the remainder of this fiscal year.” On May 29, 2007, Life Partners filed its Annual Report on Form 10-KSB with the SEC for the 2006 fiscal year. The Company’s Form 10-KSB was signed by defendant Pardo and Nina Piper (“Piper”), Life Partners’ Chief Financial Officer from 2002 until approximately October 2007, and reaffirmed the Company’s financial results also announced on May 29, 2007. The Company’s Form 10-KSB also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Piper. The Company’s Form 10-KSB, in relevant part, also stated: While in the past most insureds have had a life expectancy of 60 months or less, we have expanded this market to include insureds with life expectancies of up to 10 years or more depending on the purchasing parameters of each client. As we identify and qualify policies fitting generally within the purchasing parameters of our clients, we distribute insurance and current medical status information on these policies (with the insured’s name and other identifying information redacted) throughout our financial planner network. * * * 24

25. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 25 of 74 The remainder of the market is divided among other competitors, none of which is believed to have more than 10% of the market. Unlike some of our competitors, which have more restrictive purchasing parameters or a single provider of investment capital, we have developed markets for all types of life expectancies in order to accommodate the investment goals of our clients as well as the individual circumstances of the policies presented to us. We believe this diversified capital business model makes us more competitive in the market and provides us with greater flexibility. We also believe that this model provides a stronger platform for our sustainable growth as a company. Markets are segmented by length of life expectancy and policy face value. The amount of competition in these markets varies according to the demand for such policies. * * * Our Purchasers Depend on Our Ability to Predict Life Expectancies and Set Appropriate Price; If Our Investment Returns Are Not Competitive We May Lose Purchasers; We Must Purchase In Large Numbers A purchaser’s investment return from a life settlement depends on three factors: the policy face amount, the settlement purchase price and the demise of the insured. We price settlements based on the policy face amount and the anticipated life expectancy of an insured. For viatical settlements, life expectancies are estimated based on a medical analysis of the insured. For life settlements, life expectancies are estimated from medical and actuarial data based on the historical experiences of similarly situated persons. The data is necessarily based on averages involving mortality and morbidity statistics. The outcome of a single settlement may vary significantly from the statistical average. It is impossible to predict any one insured’s life expectancy exactly. To mitigate the risk that an insured will outlive his or her predicted life expectancy, we price life settlements to yield competitive returns even if this life expectancy prediction is exceeded. In addition, life settlement purchasers must be able to bear a non-liquid investment for an indeterminate period of time. If we underestimate the average life expectancies and price our transactions too high, our purchasers will not realize the returns they seek, demand may fall, and purchasers may invest their funds elsewhere. In addition, amounts escrowed for premiums may be insufficient to keep the policy in force and it is the responsibility of the purchasers to pay these additional premiums. If we overestimate the average life expectancies, the settlement prices we offer will fall below market levels, supply will decrease, and sellers may engage in business with our competitors or pursue other alternatives. Our ability to accurately predict life expectancies and price accordingly is affected by a number of factors, including: 25

27. our ability to anticipate and adjust for trends, such as advances in medical treatments, that affect life expectancy data; and

28. our ability to balance competing interests when pricing settlements, such as the amounts paid to life settlors, the acquisition costs paid by purchasers, and the compensation paid to ourselves and our referral networks. To foster the integrity of our pricing systems, we use both in-house and outside experts, including medical doctors and published actuarial data. We cannot assure you that, despite our experience in settlement pricing, we will not err by underestimating or overestimating average life expectancies or miscalculating reserve amounts for future premiums. If we do so, we could lose purchasers or policy sellers, and those losses could have a material adverse effect on our business, financial condition, and results of operations. (Emphasis added). 57. On June 14, 2007, the Company issuing a press release announcing financial results for its first quarter ended May 31, 2007. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ GM: LPHI), parent company of Life Partners, Inc., today announced net income of $4.7 million, or $0.49 per share for its first quarter ended May 31, 2007, compared to $0.5 million, or $0.05 per share, for first quarter of 2006. Life Partners also announced first quarter revenues of approximately $17.6 million compared to revenues of $6.2 million during the first quarter of last year. Total business volume for the first quarter, as measured in policy face values transacted increased by 180% from $28.7 million last year to $80.3 million this year. Earnings for the first quarter continued an exceptionally strong trend for the third quarter in a row. Life Partners attributed increased revenues generally to increasing interest in the life settlement market while the increase in net income resulted from the steady trend toward closing fewer policies with higher face values. * * * Brian Pardo, Chief Executive Officer, said, “As these results clearly demonstrate, we believe our outstanding performance this quarter is a direct result of the continuing growth in the life settlement market coupled with our unique ability to provide excellent service within a very reasonable cost structure. Our proprietary software and processes benefit not only our clients and shareholders, but the 26

29. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 27 of 74 thousands of wealthy seniors that are realizing the financial option we provide by turning their unwanted life insurance into cash. This increasing market awareness has made the life settlement market one of the fastest growing segments of the financial services sector and our expertise and operational efficiency has made Life Partners one of the fastest growing companies within that sector.” On July 16, 2007, Life Partners filed its Quarterly Report on Form 10-QSB with the SEC for the 2007 fiscal first quarter. The Company’s Form 10-QSB was signed by defendant Pardo and reaffirmed the Company’s financial results previously announced on June 14, 2007. The Company’s Form 10-QSB also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Piper. On September 26, 2007, the Company issued a press release announcing its financial results for the second quarter ended August 31, 2007. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ OM: LPHI), parent company of Life Partners, Inc., today announced net income of $4.3 million, or $0.46 per share for its second fiscal quarter compared to $0.22 million, or $0.02 per share, for its second quarter last year. Net income for the first half of the current fiscal year was $9.1 million, or $0.95 per share compared with net income of $0.7 million or $.07 per share for the first six months of last year. The Company also announced revenues of $17.6 million for the second quarter ended August 31, 2007 and $35.2 million for the six months ended August 31, 2007 compared to revenues of $6.6 million during the second quarter of the prior year and $13 million for the first six months of the prior year. Life Partners attributed its increased revenues to the Company’s steady trend toward closing policies with higher face values and the increase in both demand for and supply of qualified life settlement policies, which tracks the continued growth in the life settlement market generally. * * * Brian Pardo, Chief Executive Officer, said, “Looking at our year-on-year performance to date, our financial results clearly show incredible growth in the life settlement market as well as our unique ability to provide excellent service within this market at a very reasonable cost structure.” 27

30. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 28 of 74 “As the only publicly traded life settlement provider, our transparency is very attractive to institutional clients, including our recently announced relationship with West LB, one of Germany’s leading financial service providers with over $300 Billion in assets, as well as to our individual accredited investor clients. The investment we have made in proprietary software and process development enables us to meet the growing demand in both our retail (accredited investor) market and our developing institutional market.” “With continuing growth in revenues and earnings from both our retail market and our rapidly rising institutional market, we expect a substantial increase in both revenues and earnings during the second half and for our current fiscal year in general.” “We are proud to bring value to thousands of wealthy seniors by turning their unwanted life insurance into cash they never realized was available. It is Life Partners’ expertise and operational efficiency that has made us very attractive for sophisticated investors in this rapidly evolving market.” On October 15, 2007, Life Partners filed its Quarterly Report on Form 10-QSB with the SEC for the 2007 fiscal second quarter. The Company’s Form 10-QSB was signed by defendant Pardo and Piper, and reaffirmed the Company’s financial results previously announced on September 26, 2007. The Company’s Form 10-QSB also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Piper. On January 14, 2008, the Company issued a press release announcing financial results for its third quarter ended November 30, 2007. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (Nasdaq: LPHI) today announced a 515% increase in net income of $5,215,695 or $0.44 per share for the three months ended November 30, 2007, compared to $847,606 or $0.07 per share reported for the same period last year. Revenues increased by 164% over the same period last year while total business volume, as measured in policy face values transacted, increased by 257% over last year to just over $35 million. For the nine months ended November 30, 2006, the company reported an 826% increase in net income of $14,280,752 or $1.19 per share compared to $1,542,341 or $0.13 per share during the period last year. 28

31. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 29 of 74 Brian Pardo, Chief Executive Officer, said, “This has been our strongest quarter ever and we are very pleased with the continuing and substantial growth in revenues and net income. Because we serve investors in the alternative investment market and our business plan does not rely on debt, we expect Life Partners to remain insulated from the current credit trouble of other financial service companies and we believe that investors will find our company to be one of the few bright spots within the financial sector.” On January 14, 2008, Life Partners filed its Quarterly Report on Form 10-QSB with the SEC for the 2007 third fiscal quarter. The Company’s Form 10-QSB was signed by defendant Pardo and reaffirmed the Company’s financial results announced that day. The Company’s Form 10-QSB also contained a Sarbanes-Oxley required certification, signed by defendant Pardo. On March 26, 2008, the Company issued a press release where the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ GM: LPHI), parent company of Life Partners, Inc., today announced it will hold a conference call to discuss its preliminary operating results for its fiscal year ended February 29, 2008. The company expects to report a 143% increase in revenues and a 431% increase in net income for its 2008 fiscal year over the same period of the prior year. For the fiscal year, Life Partners expects to report revenues of $72.5 million compared to $29.8 million for its 2007 fiscal year. Net income for the current fiscal year was $19.1 million, or $1.59 per share compared with net income of $3.6 million or $0.31 per split adjusted share during the previous year. On the same day, the Company held a conference call with analysts to discuss its preliminary financial results for the 2007 fiscal year financial results announced earlier that same day. During the conference, defendant Pardo stated: But the key is that life settlement as a product are not correlated to any other event, whether it’s geo-political, oil, or market related, interest related, whatever. It’s only relates to the mortality on the lives we underwrite, and as such. Two things – as such, we’re growing very rapidly as investors are seeing these attributes, and are not – are not coming out of other investment stocks, bonds whatever, that are related. And putting their money into the life settlement which produced a very good and actually high rate of return without those risks and in fact without much risk at all. 29

32. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 30 of 74 * * * Well, it’s [bad economic news] good for Life Partners because we are not correlated to any other industry or any other product out there, and we’ve kind of been the baby thrown out with the bath water here, when it related to our stock price. We are not affected by any turn down in the market. We are not affected by the liquidity of the market. We are not affected by interest rates - down, up, sideways. We are not affected by oil. We are not affected by whether we are going to go to war with Iran, or any other - or anybody else for that matter. Our business is uniquely driven on the profitability, based upon our ability to adequately underwrite the lives of the policies that we buy, and I think we’ve demonstrated that we do that pretty well. And therefore, we, our business is growing, in terms of our primary business, which is supplying those policies as investments to our client base. And we expect that to continue, and is not affected by anything else. On May 15, 2008, Life Partners filed its Annual Report on Form 10-K with the SEC for the 2007 fiscal year. The Company’s Form 10-K was signed by defendant Pardo and Martin and reaffirmed the Company’s financial results previously announced on March 26, 2008. The Company’s Form 10-K also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. The Company’s Form 10-K filed with the SEC on May 15, 2008, in relevant part, also stated: While in the past most insureds have had a life expectancy of 60 months or less, we have expanded this market to include insureds with life expectancies of up to 10 years or more depending on the purchasing parameters of each client. As we identify and qualify policies fitting generally within the purchasing parameters of our clients, we distribute insurance and current medical status information on these policies (with the insured’s name and other identifying information redacted) throughout our financial planner network. * * * Unlike some of our competitors, which may have more restrictive purchasing parameters or a single provider of investment capital, we have developed markets for all types of life expectancies in order to accommodate the investment goals of our clients as well as the individual circumstances of the policies presented to us. We believe this diversified capital business model makes us more competitive in the market and provides us with greater flexibility. We also believe that this 30

34. our ability to anticipate and adjust for trends, such as advances in medical treatments, that affect life expectancy data; and 31

35. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 32 of 74 • our ability to balance competing interests when pricing settlements, such as the amounts paid to life settlors, the acquisition costs paid by purchasers, and the compensation paid to ourselves and our referral networks. To foster the integrity of our pricing systems, we use both in-house and outside experts, including medical doctors and published actuarial data. We cannot assure you that, despite our experience in settlement pricing, we will not err by underestimating or overestimating average life expectancies or miscalculating reserve amounts for future premiums. If we do so, we could lose purchasers or policy sellers, and those losses could have a material adverse effect on our business, financial condition, and results of operations. (Emphasis added). On June 16, 2008, the Company issued a press release announcing financial results for its first quarter ended May 31, 2008. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ GM: LPHI), parent company of Life Partners, Inc., today predicted record earnings as it issued guidance for its first fiscal quarter ended May 31, 2008. Life Partners expects to report first quarter earnings of approximately $0.52 per share compared with earnings of $0.40 per share last year. Results for the quarter are expected to show a 33% increase in earnings over the same period last year and a 40% increase over the immediately preceding quarter. All earnings per share calculations are adjusted to account for the 5-for-4 stock split in September 2007. For its first quarter ended May 31, 2008, Life Partners expects to report over $24 million in revenues, a 39% increase over the $17.6 million it reported for the first quarter of last year. On July 9, 2008, Life Partners filed its Quarterly Report on Form 10-Q with the SEC for the 2008 fiscal first quarter. The Company’s Form 10-Q was signed by defendant Pardo and Martin, and reaffirmed the Company’s financial results previously announced on June 16, 2008. The Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. On July 14, 2008, the Company held a conference call with analysts to discuss the Company’s 2008 fiscal first quarter results announced on June 16, 2008. Therein, defendant Pardo, in relevant part, stated: 32

36. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 33 of 74 Well, Life Partners, first of all designed and is marketing a product that is non-correlated. And so it’s an alternative investment. It’s safe and throws off a better than average return. So, we have value and service to a large client base, and more and more and especially now, they’re recognizing that there is extreme safety in the investments that are acquired by us for our client base, and which are life settlements. But let me hasten to say life settlements which are properly and carefully underwritten and meet a very carefully thought out, and long, long-term period of underwriting standards that allows us to keep the purity of the product as, I guess, I should say as it is. As for the numbers themselves, I think that we should probably go there. (Emphasis added). On September 18, 2008, the Company issued a press release announcing financial results for its second quarter ended August 31, 2008. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ GM: LPHI), parent company of Life Partners, Inc., today announced another quarter of record earnings as it issued guidance for its second fiscal quarter and first half ended August 31, 2008. For the quarter, Life Partners expects to report a 56% increase in net earnings, which were $6.6 million or $0.56 per share compared with earnings of $4.3 million or $0.36 per share for the same period of last year. For the six months ended August 31, 2008, the company expects to report earnings of $12.9 million or $1.08 per share compared with $9.1 million or $0.76 per share for the same period last year. For the quarter ended August 31, 2008, Life Partners expects to report $25.9 million in revenues, a 47% increase over the $17.6 million it reported for the same period last year. For the first half of the year ended August 31, 2008, the company expects to report revenues of $50.4 million, which is a 43% increase compared to $35.2 million for the same period last year. On October 10, 2008, Life Partners filed its Quarterly Report on Form 10-Q with the SEC for the 2008 fiscal second quarter. The Company’s Form 10-Q was signed by defendant Pardo and Martin, and reaffirmed the Company’s financial results previously announced on September 18, 2008. The Company’s Form l0-Q also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. 33

37. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 34 of 74 72. On October 17, 2008, Life Partners held a conference call with analysts to discuss the Company’s 2008 fiscal second quarter results announced on September 18,2008. Therein, defendant Pardo, in relevant part, stated: Well, right now, I can only say that the future looks very positive. More and more people, of course now, particularly in view of the difficulties in the marketplace, are realizing that life settlements are - properly underwritten and properly analyzed, are in fact a very powerful instrument to not only make an above-average return on your investment, but also an above-average return with a very high level of confidence and safety on the capital invested. * * * [John Nobile - Analyst] Hi, good morning, and once again, congratulations on pretty impressive results. I wanted to get to the topic of, I guess you’re aware, the 21st Services had lengthened life expectancies. I’m curious to see your opinion on how this would affect Life Partners? I know that National Financial Partners recently said it would negatively impact the pricing of Life Settlements. [Defendant Pardo] Well, let me ask Scott to address that, but first, let me say that we do not agree with that statement at all. If you’re - unless you’ve locked your funding, you’re underwriting into that one company, but I don’t know anybody that would be that foolish. But if they would, then, of course, it could be detrimental. What do you think Scott? [Defendant Peden] Yes, I think the issue the 21st has had more to do with other companies. I don’t see it effecting Life Partners at all. In fact, I think that it probably will help us, because in instances where there were other companies that were locked in, sometimes it could sort of skew the market. And so I think that it is overall good for the general market and allows us to be even more competitive as far as that goes, because you want to make sure that every life expectancy underwriter has their own methodology and that sort of thing. And ultimately, what we use more than the life expectancy is the discount. That’s how we’re able to return the kinds of returns to our clients that they expect. It’s not so much the precision of the life expectancy as it is the discount at which we purchase. * * * 34

38. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 35 of 74 [David Foster - Analyst] Hello. Nice job on the quarter. I just had another sort of accounting question. I was looking at your premium advances for the quarter which were up a bit, and I read that in the Q that said that the settlements – most of which were made before 1990 – allegedly lacked sufficient disclosure about the purchasers’ obligation to pay premiums in order to maintain the acquired policy. So these are older policies that you guys are having to make the advances on? And I was just curious. If a policy has been outstanding for more than 10 years, what kind of return does that suggest to the investor? [Defendant Peden] Obviously, now, the kinds of policies we are talking about in that time frame are completely different from the kind of policies that we are doing right now. Life settlements typically are on an individual who – as Mr. Pardo said earlier – is between 78 and 80 to years old. The average face value right now is about $3.8 million or so. [Defendant Pardo] Yes. But it would still be -- excuse me for interrupting, Scott. It would still be -- the way those are underwritten -- would be 4 or 5% return. And so that’s about what we’re looking at, and we will -- with regard to that, you know, as we carry it on our balance sheet under other items, we don’t actually put it on our balance sheet. [David Foster - Analyst] Right. It’s fully reserved against. I see that. * * * [Defendant Pardo] That’s right but we do get that money back. And so it’s kind of like Christmas, when we get it paid back. It is merely an issue that had to do with the policies that were – did have longer life expectancies. And we thought like there was -- a disclosure was adequate, but the Attorney General felt like it wasn’t. And so rather than argue about it because we are going to get the money back anyway, we said, “Okay, we will advance it.” And it’s paid and we will get the money paid back. Basically it’s not really at this point a material issue anymore for the Company. [R. Scott Peden - General Counsel of Life Partners] 35

39. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 36 of 74 So because of the discount on there, certainly the returns are still positive even with (multiple speakers). Very positive, yes. [David Foster - Analyst] You are saying 4 to 5%. What is a kind of -- what kind of return are you suggesting or indicating to potential investors these days? What should they expect? [Defendant Pardo] We like to tell our clients to be looking for a low double-digit return. [David Foster - Analyst] Okay. 11, 12%? That kind of return? [Defendant Pardo] Yes. And I think if they are expecting that, they will not be disappointed. [Defendant Peden] The other aspect of it is it is completely not correlated and especially in today’s market. That’s almost more valuable than the return. [David Foster - Analyst] Right. [Defendant Pardo] Yes. And -- but, anyway, we want our marketing people to be very conservative in how they state returns. And we have not had any since 19 -- since 2000, especially just to give -- just to pick a date out of the (inaudible). We got little or no complaints concerning returns. * * * [Unidentified Analyst] Okay. And just the question I asked earlier, I just wanted to get back to that. Obviously you didn’t agree with, I guess it was National Financial’s statement about the lengthening of life expectancies. I know, I looked in the K, it says you used both in-house and outside experts. I was just curious, the outside experts, 36

40. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 37 of 74 because I think there’s only a handful, which ones in particular if you could disclose that, you might actually use and what percentage that is? [Defendant Pardo] No. We can’t get into that level of detail with how we do business, because it’s proprietary. But all we’re saying, if it was misunderstood possibly, is that the changes that were implemented by 21st Services had no affect at all on anything involving LPHI. (Emphasis added). On December 15, 2008, the Company issued a press release announcing financial results for its third quarter ended November 30, 2008. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ GM: LPHI), parent company of Life Partners, Inc., today announced another quarter of record earnings as it issued guidance for its third fiscal quarter and nine months ended November 30, 2008. For the quarter, Life Partners expects to report a 38% increase in net earnings which were $7.3 million or $0.61 per share compared with earnings of $5.2 million or $0.44 per share for the same period of last year. For the nine months ended November 30, 2008, the company expects to report earnings of $20.1 million or $1.69 per share compared with $14.3 million or $1.19 per share for the same period last year. For the quarter ended November 30, 2008, Life Partners expects to report $28.1 million in revenues, a 46% increase over the $19.3 million it reported for the same period last year. For the nine months ended November 30, 2008, the company expects to report revenues of $77.3 million, which is a 42% increase compared to $54.5 million for the same period last year. Additionally, defendant Pardo was quoted in the press release: There is no question that investors are more wary now than they have been in a generation. That’s why the demand for our services continues to grow. Investors are looking for asset-based investments which are not correlated to the financial markets. Life Partners deals exclusively with assets that have an inherent value and do not rely on future market performance to realize gains. During this time of extreme market volatility, our clients’ investments in life settlements have remained completely unaffected and that is the kind of diversification that investors want in today’s market. 37

41. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 38 of 74 On January 9, 2009, Life Partners filed its Quarterly Report on Form l0-Q with the SEC for the 2008 fiscal third quarter. The Company’s Form 10-Q was signed by defendant Pardo and Martin, and reaffirmed the Company’s financial results previously announced on December 15, 2008. The Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. On January 13, 2009, the Company held a conference call with analysts to discuss the Company’s 2008 fiscal third quarter results announced on January 9, 2009. During the conference, defendant Pardo, in relevant part, stated: So first of all, when somebody decides they are going to invest money with us. In other words, to buy a policy. They do not write a check to Life Partners. They write a check to an independent escrow agent and an account is set up there. We act as an instruction-driven agent to pick out. We are kind of the Coldwell Banker of the insurance world. And so our job is to find policies, source policies that are qualified, underwrite them, make sure that they meet the underwriting and the investment criteria that the clients are looking for and that we know they are looking for to produce the kinds of returns that we are wanting, double-digit returns, and in a reasonable timeframe -- four, five, six years. And so we don’t collect a dime of money. It stays in the escrow account until a policy or a piece of a policy has been selected and chosen by the client and the client authorizes us through a written document to make that buy on their behalf. Then it’s actually the escrow company that ends up taking the money, paying the owner of the policy, paying the fees -- now that is when we get paid only on the event of the occurrence of the transaction. We don’t get paid beforehand and we don’t get paid afterwards. We don’t get paid success fees. We don’t get paid percentages of -- if we run over certain boundaries. We don’t get paid anything except what we are paid to do the transaction. Notwithstanding the Company’s reporting of record revenues, research analysts raised concerns about the Company’s business practices, especially with respect to the determination of life expectancies and accounting issues. On February 11, 2009, Citron Research published an article that called into question Life Partners’ business practices, 38

42. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 39 of 74 specifically those relating to the determination of life expectancies and the Company’s practice of charging egregious fees on their transactions. The article addressed numerous “red flags” concerning the Company’s questionable business practices, including the following: 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: Failing to disclose their fees transparently to the investors and settlors Preventing the transaction from being priced competitively by any sort of bidding process and worst, not disclosing the true actuarial life expectancy of the insured (the largest single factor impacting the ultimate percentage IRR on the investment) (http://www.dora.state.co.us/dora-pages/newsreleases/LifePartnersSummaryJudgement.pdf) 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 up front transaction fees, or over 40% of the gross sale price. Note that LPHI takes its entire fee up front, while the investor will not find out how 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.” 39

43. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 40 of 74 “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”. * * * 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. (Emphasis in original). Murrell, Hall, McIntosh has about 16 other publicly traded clients[.] * * * LPHI has a higher market cap than all the auditor’s 16 other publicly clients combined! (Emphasis in original). Citron notes that the auditor fees paid by LPHI to Murrell et al. in the last three years are really tiny: 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 40

44. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 41 of 74 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”. * * * 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. Following the publication of this article, the Company’s shares declined $2.45 per share, or 13.67 percent, to close on February 11, 2009 at $15.48 per share, on unusually heavy trading volume. On February 11, 2009, the Company responded to the research report. In a press release, defendant Pardo stated: Earlier today, a negative report was issued about Life Partners which contained inaccurate assumptions, misinformation and erroneous facts about our company. As a result of the information in this report, our stock experienced unusual volatility and trading volume. We are confident that our business growth will remain strong throughout the remainder of this fiscal year and beyond. We vehemently disagree with the conclusions reached by the author of the report and believe strongly that our business model will continue to demonstrate the sustainable growth we have exhibited over the last 18 years. We urge all shareholders to focus on our exceptionally strong business fundamentals and welcome the opportunity to address any issues or legitimate concerns our shareholders may have. 41

45. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 42 of 74 On May 29, 2009, the Company issued a press release announcing financial results for its fiscal year and fourth quarter ended February 28, 2009. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NasdaqGS: LPHI), parent company of Life Partners, Inc., today released its preliminary earnings for its fiscal year and fourth quarter ended February 28, 2009. For the year, Life Partners expects to report a 46% increase in net earnings of $27.4 million or $1.84 per split-adjusted share compared to $18.8 million or $1.25 per split-adjusted share for the previous year. Revenues for the year are expected to be $103.6 million, a 43% increase over the $72.6 million reported for last year. All figures are adjusted for the 5-for-4 forward stock split which occurred on February 16, 2009. For the quarter ended February 28, 2009, the company expects to report earnings of $7.2 million on revenues of $26.3 million or $.49 per split-adjusted share compared with $4.5 million on $18.1 million or $.30 per split-adjusted share for the same period last year. On May 29, 2009, Life Partners filed its Annual Report on Form 10-K with the SEC for the 2008 fiscal year. The Company’s Form 10-K was signed by defendant Pardo and Martin and reaffirmed the Company’s financial results announced that day. The Company’s Form 10-K also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. The Company’s Form 10-K filed with the SEC on May 29, 2009, in relevant part, also stated that: While in the past most insureds have had a life expectancy of 60 months or less, we have expanded this market to include insureds with life expectancies of up to 10 years or more depending on the purchasing parameters of each client. As we identify and qualify policies fitting generally within the purchasing parameters of our clients, we distribute insurance and current medical status information on these policies (with the insured’s name and other identifying information redacted) throughout our financial planner network. * * * 42

46. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 43 of 74 Unlike some of our competitors, which may have more restrictive purchasing parameters or a single provider of investment capital, we have developed markets for all types of life expectancies in order to accommodate the investment goals of our clients as well as the individual circumstances of the policies presented to us. We believe this diversified capital business model makes us more competitive in the market and provides us with greater flexibility. We also believe that this model provides a stronger platform for our sustainable growth as a company. Markets are segmented by length of life expectancy and policy face value. The amount of competition in these markets varies according to the demand for such policies. * * * Our Purchasers Depend on Our Ability to Predict Life Expectancies and Set Appropriate Prices; If Our Investment Returns Are Not Competitive, We May Lose Purchasers A purchaser’s investment return from a life settlement depends on three factors: the difference between the policy face amount and purchaser’s cost basis (consisting of the acquisition cost and premiums paid to maintain the policy), the length of the holding period, and the demise of the insured. We price settlements based on the policy face amount, the anticipated life expectancy of an insured and policy maintenance costs. Life expectancies are generally estimated from standard medical and actuarial data based on the historical experiences of similarly situated persons. The data is necessarily based on averages involving mortality and morbidity statistics. The outcome of a single settlement may vary significantly from the statistical average. It is impossible to predict anyone insured’s life expectancy exactly. To mitigate the risk that an insured will outlive his or her predicted life expectancy, we price life settlements to yield competitive returns even if this life expectancy prediction is exceeded by several years. In addition, life settlement purchasers must be able to bear a non-liquid investment for an indeterminate period. If we underestimate the average life expectancies and price our transactions too high, our purchasers will realize smaller returns, demand may fall, and purchasers may invest their funds elsewhere. In addition, amounts escrowed for premiums may be insufficient to keep the policy in force, requiring purchasers to invest further proceeds to pay these additional premiums. If we overestimate the average life expectancies, the settlement prices we offer will fall below market levels, supply will decrease, and sellers may engage in business with our competitors or pursue other alternatives. Our ability to accurately predict life expectancies and price accordingly is affected by a number of factors, including: • The accuracy of our life expectancy estimations, which must sufficiently account for factors including an insured’s age, medical condition, life habits (such as smoking), and geographic location; 43

48. Our ability to balance competing interests when pricing settlements, such as the amounts paid to policy sellers, the acquisition costs paid by purchasers, and the compensation paid to ourselves and our referral networks. To foster the integrity of our pricing systems, we use both in-house and outside experts, including medical doctors and published actuarial data. We cannot assure you that, despite our experience in settlement pricing, we will not err by underestimating or overestimating average life expectancies or miscalculating reserve amounts for future premiums. If we do so, we could lose purchasers or policy sellers, and those losses could have a material adverse effect on our business, financial condition, and results of operations. (Emphasis added). On June 16, 2009, the Company issued a press release announcing financial results for its first fiscal quarter ended May 31, 2009. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NasdaqGS: LPHI), parent company of Life Partners, Inc., predicted another quarter of record earnings as it announced its preliminary financial results for its first fiscal quarter ended May 31, 2009. Life Partners expects to report first quarter earnings of approximately $0.53 per share compared with earnings of $0.42 per share last year. Results for the quarter are expected to show a 26% increase in earnings over the same period last year. All earnings per share calculations are adjusted to account for the 5-for-4 stock split in February 2009. For its first quarter ended May 31, 2009, Life Partners expects to report $27.4 million in revenues, a 12% increase over the $24.4 million it reported for the first quarter of last year. On July 10, 2009, Life Partners filed its Quarterly Report on Form 10-Q with the SEC for the 2009 fiscal first quarter. The Company’s Form 10-Q was signed by defendant Pardo and Martin, and reaffirmed the Company’s financial results previously announced on June 16, 2009. The Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. 44

49. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 45 of 74 On September 16, 2009, the Company issued a press release announcing financial results for its second quarter ended August 31, 2009. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (Nasdaq GS: LPHI), parent company of Life Partners, Inc., today announced its preliminary financial results for its second fiscal quarter and first half ended August 31, 2009. Life Partners expects to report second quarter earnings of $0.51 per share, a 16% increase compared with earnings of $0.44 per share last year. For the six months ended August 31, 2009, the company expects to report earnings of $1.01 per share, a 17% increased compared with $0.86 per share for the same period last year. For the quarter ended August 31, 2009, Life Partners expects to report $29.1 million in revenues, a 17% increase over the $24.8 million reported for the same period last year. For the six months ended August 31, 2009, the company expects to report revenues of $56.5 million, a 15% increase over the $49.2 million reported for the same period last year. On October 9, 2009, Life Partners filed its Quarterly Report on Form 10-Q with the SEC for the 2009 fiscal second quarter. The Company’s Form 10-Q was signed by defendant Pardo and Martin, and reaffirmed the Company’s financial results previously announced on September 16, 2009. The Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. On January 11, 2010, the Company issued a press release announcing financial results for its third fiscal quarter ended November 30, 2009. Therein, the Company, in relevant part, stated: Life Partners Holdings, Inc. (NASDAQ GS: LPHI), parent company of Life Partners, Inc., predicted another quarter of record earnings as it announced its preliminary financial results for its third fiscal quarter ended November 30, 2009. Life Partners expects to report third quarter earnings of approximately $0.57 per share compared with earnings of $0.49 per share last year. Results for the quarter are expected to show a 16% increase in earnings over the same period last year. All earnings per share calculations are adjusted to account for the 5-for-4 stock split in February 2009. For its third quarter ended November 30, 2009, Life 45

50. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 46 of 74 Partners expects to report $31.0 million in revenues, a 10% increase over the $28.1 million it reported for the third quarter of last year. For the nine months ended November 30, 2009, Life Partners expects to report earnings per share of $1.58 compared to $1.35 per share last year, a 17% increase. Total revenue for the nine months is expected to show an increase of 13%, from $77.3 million last year to $87.5 million this year. On January 11, 2010, Life Partners filed its Quarterly Report on Form 10-Q with the SEC for the 2009 third fiscal quarter. The Company’s Form 10-Q was signed by defendant Pardo and Martin, and reaffirmed the Company’s financial results announced that day. The Company’s Form 10-Q also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. On May 12, 2010, Life Partners filed its Annual Report on Form 10-K with the SEC for the 2009 fiscal year. The Company’s Form 10-K was signed by defendant Pardo and Martin and included the Company’s financial results for the 2009 fiscal year. The Company’s Form 10-K also contained Sarbanes-Oxley required certifications, signed by defendant Pardo and Martin. The Company’s Form 10-K filed with the SEC on May 12, 2010, in relevant part, also stated: While in the past most insureds have had a life expectancy of 60 months or less, we have expanded this market to include insureds with life expectancies of up to 10 years or more depending on the purchasing parameters of each client. As we identify and qualify policies fitting generally within the purchasing parameters of our clients, we distribute insurance and current medical status information on these policies (with the insured’s name and other identifying information redacted) throughout our financial planner network. * * * Unlike some of our competitors, which rely on the credit markets and may have more restrictive purchasing parameters or a single provider of investment capital, our retail oriented model has a broad base of over 25,000 clients. We believe this diversified model makes us more competitive in the market and provides us with 46

51. Case 6:11-cv-00158-WSS Document 1 Filed 06/09/11 Page 47 of 74 greater funding flexibility. We also believe that this model provides a stronger platform for our sustainable growth as a company. Markets are segmented by length of life expectancy and policy face value. The amount of competition in these markets varies according to the demand for such policies. * * * Our Purchasers Depend on Our Ability to Predict Life Expectancies and Set Appropriate Prices; If Our Investment Returns Are Not Competitive, We May Lose Purchasers A purchaser’s investment return from a life settlement depends on three factors: the difference between t