Shares of Life Partners Holdings Inc tanked as much as 39 percent on Wednesday, a day after U.S. market regulators accused the company of an accounting fraud which overvalued assets on its books.
On Tuesday, the U.S. Securities and Exchange Commission accused the life settlement company and three of its executives of "systematically and materially" underestimating life expectancy estimates it used to price transactions.
Life settlement companies such as Life Partners buy insurance policies from people for a fraction of their value and continue to pay premiums, betting that they will eventually make a profit when the seller dies. The profit decreases if the person lives longer than expected.
Life Partners Holdings' Chief Executive and majority stakeholder Brian Pardo, who was among the three executives charged, had however, rejected SEC's charges and said in a statement that the company believes they have "no merit" and intends to "vigorously defend" itself.
The SEC action comes almost three months after the Federal Bureau of Investigation raided and questioned Life Partners' peer Imperial Holdings Inc related to its life insurance business.
Tensions run high between the insurance industry and the life settlement market, mostly over legal questions about whether the sold policies were taken out fraudulently and whether insurers are responsible for paying.
Shares of the Waco, Texas-based company were down 20 percent at $5.08. More than a million shares were traded as of 11.30 ET, almost 13 times the stock's 10-day moving average.
(Reporting by Ashutosh Pandey in Bangalore; Editing by Supriya Kurane)