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Case 1:12-cv-00033-JRN

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UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

SECURITIES AND EXCHANGE COMMISSION, :

v.

Plaintiff,

LIFE PARTNERS HOLDINGS, INC., BRIAN PARDO,R.SCOTTPEDEN,AND DAVID M. MARTIN,

Defendants.

Civil Action No.: 1-12-cv-00033

DEFENDANTS' MOTION FOR SANCTIONS AND BRIEF IN SUPPORT

LOCKE LORD LLP Jason S. Lewis State Bar No. 24007551 Email: jlewis@lockelord.com

David W. Klaudt State Bar No. 00796073 Email: dklaudt@lockelord.com Adam Tyler State Bar No. 24070777 atyler@lockelord.com

2200 Ross Avenue, Suite 2200

Dallas, Texas 75201 Tel: (214) 740-8000 Fax: (214) 756-8414 ATTORNEY FOR DEFENDANT BRIAN D.

PARDO

PATTON BOGGS LLP S. Cass Weiland State Bar No. 21081300 Robert A. Hawkins State Bar No. 00796726

2000 McKinney Ave, Suite 1700

Dallas, Texas 75201 Ph: (214)578-1500 Fax: (214) 578-1550 Email: cweiland@pattonboggs.com Email: rhawkins@pattonboggs.com ATTORNEY FOR DAVID M. MARTIN

BAKER & McKENZIE LLP Elizabeth L. Yingling State Bar No. 16935975 E-Mail: elizabeth.yingling@bakermckenzie.com Laura J. O'Rourke State BarNo. 24037219 E-Mail: laura.orourke@bakermckenzie.com Will R. Daugherty State Bar No. 24053170 E-Mail: will.daugherty@bakermckenzie.com 2300 Trammell Crow Center, 2001 Ross Avenue Dallas, TX 75201 Tel.: (214) 978-3000 Fax: (214) 978-3099

LAW OFFICES OF J PETE LANEY J Pete Laney State Bar No. 24036942 E-Mail: jpete@jpetelaney.com 1122 Colorado Street, Suite 111 Austin, TX 78701-2159 Tel: (512) 473-0404 Fax: (512) 672-6123

ATTORNEYS FOR DEFENDANTS, LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN

Case 1:12-cv-00033-JRN

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TABLE OF CONTENTS

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I. PRELIMINARY STATEMENT

 

1

II. FACTUAL BACKGROUND

1

III. ARGUMENTS AND AUTHORITIES

 

3

IV. RELIEF SOUGHT

 

10

v.

PRAYER

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Case 1:12-cv-00033-JRN

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TABLE OF AUTHORITIES

Page 3 of 15

 

Page(s)

CASES

 

Mick Haig Prods. v. Does 1-670,

 

No. 3:10-CV-1900-N, 2011 U.S. Dist. LEXIS 128366 (N.D. Tex. Sept. 9, 2011)

.4, 6, 10

SEC v. Blinder, Robinson & Co., Nos. 83-K-668, 83-B-668, 1987 U.S. Dist. LEXIS 14741 (D. Colo. Dec. 2. 1987)

9, 10

Silva v. Karlsen,

 

No. 97-3793, 1997 U.S. Dist. LEXIS

13272 (E.D. Pa. Aug. 29, 1997)

6

OTHER AUTHORITIES

 

Fed.

R.

Civ. P. 26(d)(1)

4

Fed. R. Civ. P. 45(a)(1)(A)

 

4

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UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

SECURITIES AND EXCHANGE COMMISSION, :

v.

Plaintiff,

LIFE PARTNERS HOLDINGS, INC., BRIAN PARDO,R.SCOTTPEDEN,AND DAVID M. MARTIN

Defendants.

Civil Action No.: 1-12-cv-00033

DEFENDANTS' MOTION FOR SANCTIONS AND BRIEF IN SUPPORT

Defendants, Life Partners Holdings, Inc. ("LPHI"), R. Scott Peden ("Peden"), Brian

Pardo ("Pardo"), and David M. Martin ("Martin") (collectively "Defendants"), file this Motion

for Sanctions, pursuant to Rules 26, 30 and 45 of the Federal Rules of Civil Procedure, and

respectfully show the Court as follows:

I. PRELIMINARY STATEMENT

Without prior notice to Defendants or Defendants' counsel, Plaintiff issued an SEC

subpoena and obtained testimony from a non-party witness after this case was filed, and prior to

the parties' Rule 26(f) conference.

Because Plaintiffs conduct knowingly violated the Federal

Rules of Civil Procedure, as well as Defendants' Constitutional Due Process rights, Defendants

seek sanctions against Plaintiff in order to (1) prohibit the use, in any manner, of the improperly-

obtained testimony, (2) determine if additional premature and improper discovery has taken

place or is taking place, and (3) prevent any additional violative conduct.

II. FACTUALBACKGROUND

Plaintiff commenced an informal inquiry of LPHI and its subsidiary, non-party Life

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Partners, Inc., in June, 2010. 1 Thereafter, on September 3, 2010, Plaintiff issued a Formal Order

of Investigation, styled In the Matter ofLife Partners, Inc. and Life Partners Holdings, Inc., FW-

3501? After a eighteen (18) months of investigation, Plaintiff initiated this action on January 3,

2012. [Dkt No. 1]

On January 9, 2012, Plaintiff issued a Notice of a Lawsuit and Request to

Waive Service of a Summons to each Defendant.

[Dkt Nos. 6, 8-10]

Defendants, by and

through their respective counsel, executed the Waivers of Service and, thereby, extended the

time period for the filing of their respective responsive pleadings.

[Dkt Nos. 6, 8-10]

On

February 29, 2012, Defendants LPHI and Peden filed a Motion to Dismiss.

[Dkt No. 12]

On

March 1, 2012, Defendant Pardo filed his Motion to Dismiss.

[Dkt No. 13]

And, on March 9,

2012, Defendant Martin filed his Motion to Dismiss.

[Dkt No. 16]

On April 2, 2012, Plaintiff

filed oppositions to both Pardo's and LPHI's and Peden's Motions to Dismiss. [Dkt Nos. 19, 21]

Thereafter, on April 10, 2012, Plaintiff filed an opposition to Defendant Martin's Motion to

Dismiss. [Dkt No. 22] The Court denied the Motions to Dismiss by Order dated April 19, 2012,

ordered the Defendants to file their respective responsive pleadings by May 4, 2012, and ordered

the parties to submit their proposed scheduling orders by June 4, 2012.

[Dkt No. 23]

On May

31, 2012, the parties conducted their Rule 26(f) conference. 3

Thereafter, on June 4, 2012, the

parties jointly filed a proposed Scheduling Order.

Order on June 28, 2012. [Dkt No. 29]

[Dkt No. 28]

The Court issued a Scheduling

Pursuant to

the

agreement

reached

during

the

Rule

exchanged their respective Initial Disclosures on June 8, 2012. 4

26(f)

conference,

the

parties

On June 4, 2012, Plaintiff sent

Defendants' counsel a CD containing the transcripts of testimony taken by the SEC during its

1 Affidavit of Elizabeth Yingling, ("Yingling Aff."), ~4, included in the Appendix as Exhibit A. 2 !d. at ~5.

3 !d. at ~8.

4 !d.

at ~9.

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investigation, as well as the exhibits related thereto. 5

Unbeknownst

to

Defendants,

as

revealed

by

Plaintiffs

foregoing

production

of

documents, on January 10, 2012- seven days after Plaintiff initiated this action- Plaintiff issued

a Subpoena for the testimony of Peter T. Cangany, Jr., a partner with Ernst & Young LLP who

was previously

Partners,

Inc.

in charge of LPHI's audits. 6

and Life Partners Holdings,

The Subpoena was issued "In the Matter of Life

Inc.

(FW-3501)." 7

In addition, the

Subpoena

commanded that Mr. Cangany appear at Plaintiffs Fort Worth office on January 18, 2012 at 9:00

a.m. 8

Defendants were not served with a copy of the Subpoena and were not provided with

notice of its issuance prior to Plaintiffs June 4, 2012 production. 9

Mr. Cangany did, in fact, appear for testimony in Plaintiffs Forth Worth office on

January 18,2012. 10

One of the attorneys of record for the Plaintiff in this case, Michael King,

was present at Mr. Cangany's testimony. 11 In addition, Mr. Cangany produced, either at or prior

to his testimony, an "Abbreviated Background Questionnaire," dated January 17, 2012, and

marked as Exhibit 135 to his testimony. 12 Mr. Cangany's testimony commenced at 9:05 a.m. on

January 18, 2012, and concluded at 5:00p.m. that same day. 13 Defendants were not provided the

opportunity to appear at Mr. Cangany's testimony, as they had no knowledge of same. 14

III. ARGUMENTS AND AUTHORITIES

The Federal Rules of Civil Procedure are clear:

"A party may not seek discovery from

5 Id at ~10.

6 A true and correct copy of the Subpoena is attached to the Yingling Aff. as Exhibit 1.

7/d

8 Id

9 Yingling Aff., ~7; Affidavit of Jason Lewis ("Lewis Aff."), ~4, included in the Appendix as Exhibit B; Affidavit of S. Cass Weiland ("Weiland Aff."), ~4, included in the Appendix as Exhibit C.

10 Yingling Aff., ~13; Pages from Cangany testimony included as Exhibit 3 to Yingling Aff.

11 Exhibit 3 to Yingling Aff.

12 Yingling Aff., ~12; Redacted Questionnaire included as Exhibit 2 to Yingling Aff.

13 Exhibit 3 to Yingling Aff.

14 Yingling Aff., ~7; Lewis Aff., ~4;Weiland Aff., ~4.

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any source before the parties have conferred as required by Rule 26(f)

except when

authorized by these rules, by stipulation, or by court order."

Fed. R. Civ. P. 26(d)(l).

In

addition, Rule 30(a)(2)(A)(iii) requires that leave of court must be sought before a deposition can

be taken before the time specified in Rule 26(d).

Further, Rule 30(b)(1) requires that "[a] party

who wants to depose a person by oral questions must give reasonable written notice to every

other party."

Plaintiff violated each ofthe foregoing rules by obtaining discovery, without court

permission, prior to the parties' Rule 26(f) conference and without notice to Defendants.

In addition, Plaintiff violated Rule 45 because the Subpoena, on its face, was insufficient

in that it did not (1) state the court from which it was issued; (2) state the proper title of the court

action with the proper civil-action number; and (3) set out the text of Rule 45(c) and (d). Fed. R.

Civ. P. 45(a)(1)(A)Y Further, the Subpoena violated Rule 45(a)(3) because it was not signed by

the clerk of court or an attorney; rather, it was signed by a non-attorney employee ofPlaintiff. 16

Plaintiffs conduct is inexcusable, highly prejudicial to Defendants, and indisputably

sanctionable.

"Because attorneys use subpoenas to further discovery, sanctions in the subpoena context

often implicate the sanction provisions in both Rules 26 and 45."

Mick Haig Prods. v. Does 1-

670, No. 3:10-CV-1900-N, 2011 U.S. Dist. LEXIS 128366, at *9 (N.D. Tex. Sept. 9, 2011).

Rule 26(g) of the Federal Rules of Civil Procedure provides, in pertinent part, as follows:

[E]very discovery request, response, or objection must be signed by at least one attorney of record in the attorney's own name- or by the party personally,

By signing, an attorney or party certifies that to the

if unrepresented

best of the person's knowledge, information, and belief formed after

reasonable inquiry:

(B) with respect to a discovery request, response or objection, it is:

15 Exhibit 1 to Yingling Aff. 16 See Exhibit 1 to Yingling Aff., and the signature block for David R. King.

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(i) consistent with these rules and warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law, or for establishing new law;

(ii) not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and

(iii) neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action.

(Emphasis added). Further, Rule 26(g)(3) provides:

If a certification violates this rule without substantial justification, the court,

on motion or on its own, must impose an appropriate sanction on the

signer, the party on whose behalf the signer was acting, or both. The sanction may include an order to pay the reasonable expenses, including

attorney's fees, caused by the violation. (Emphasis added).

Similarly, Rule 45(c)(l) provides, in relevant part, as follows:

A party or attorney responsible for issuing and serving a subpoena must take

reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena. The issuing court must enforce this duty and impose an appropriate sanction - which may include lost earnings and reasonable attorneys' fees- on a party or attorney who fails to comply.

The Subpoena at issue was signed by David R. King -

a non-attorney employed by

Plaintiff.

It is clear that David King was signing the Subpoena on behalf of Plaintiff, and thus,

Rule 26(g) clearly applies.

Further, Plaintiff unquestionably violated Rule 26(g) because the

issuance of the Subpoena (1) violated, and thus was not consistent with, the Rules, (2) was issued

for an improper purpose, i.e., to obtain ex parte discovery, and (3) was unreasonable in light of

the numerous violations of the Federal Rules of Civil Procedure.

Finally, Plaintiff was wholly

unjustified in issuing the Subpoena and obtaining the discovery.

Therefore, Rule 26(g)(3)

mandates the imposition of sanctions against Plaintiff.

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In addition, the Subpoena unquestionably violated Rule 45 and, as such, was invalid. By

issuing and serving an invalid subpoena, Plaintiff imposed an undue burden and expense on a

non-party, thereby also requiring the imposition of sanctions under Rule 45(c)(1 ).

On these issues, the Mick Haig Productions case is instructive.

In that copyright

infringement case, plaintiffs counsel filed a motion for leave to take discovery prior to the

parties' Rule 26(f) conference.

2011

U.S. Dist. LEXIS

128366, at *3.

Before ruling on

plaintiffs motion, the court issued a document preservation order "pending resolution of the

Discovery Motion."

!d.

Soon thereafter, plaintiff dismissed its case with prejudice.

!d.

at *6.

Subsequently, Ad Litem counsel for defendants learned that plaintiff had, in fact,

issued

subpoenas during the pendency of its motion and prior to its dismissal ofthe lawsuit. !d. at *7-8.

As a result, defendants sought sanctions. !d.

In granting sanctions, the court found that plaintiff had violated both Rules 26 and 45. As

to Rule 26, the court "explicitly disagreed" with plaintiffs contention that the need to obtain a

court order to seek discovery prior to a Rule 26(f) conference was a "mere procedural formality."

!d.

at *12.

Thus, the court held that the issuance of the subpoenas was not "objectively

reasonable" and was "inconsistent with Rule 26(d)'s prediscovery conference requirement."

!d.

at *13-14.

Further, the court found that plaintiff violated Rule 45 because, "[b]y serving invalid

subpoenas, [plaintiff] necessarily 'impos[ed] an undue burden or expense' on each [subpoenaed

party] and the putative Does."

!d. at *14 (quoting Fed. R. Civ. P. 45(c)(l)).

Indeed, the court

held that "'[t]o knowingly abuse [the subpoena] power is an affront to the fair and impartial

administration of justice and is subject to sanctions under the inherent power of the court,' and

the Federal Rules."

!d. at *17 (quoting In re Air Crash at Charlotte, NC., 982 F. Supp. 1092,

1101 (D.S.C. 1997))(emphasis added).

See also Silva v. Karlsen, No. 97-3793, 1997 U.S. Dist.

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LEXIS 13272, at *2-7 (E.D. Pa. Aug. 29, 1997)(granting defendants' motion for attorneys' fees

for plaintiffs' violations of Rules 26 and 45 based upon plaintiffs' issuance of a subpoena,

without notice to defendants, three days after the lawsuit was filed and before defendants were

served).

In addition to the foregoing, Plaintiff is subject to sanctions under Rule 30(d)(2):

The court may impose an appropriate sanction - including the reasonable

on a person who

impedes, delays, or frustrates the fair examination of the deponent. (Emphasis added).

expenses and attorney's fees incurred by any party -

Because Plaintiff failed to seek leave of Court to take Mr. Cangany's testimony and because

Plaintiff failed to provide notice to Defendants of same such that they could attend and cross-

examine the witness, Plaintiff unquestionably "frustrate[d] the fair examination of the deponent."

Thus, for this additional reason, sanctions are appropriate.

Defendants anticipate that Plaintiff may attempt to excuse its wrongful conduct by

asserting that the testimony was taken in connection with the investigation of Defendants, and

not in connection with this lawsuit. However, even a cursory review of Mr. Cangany's testimony

establishes, beyond refute, that the clear purpose was to "lock in" Mr. Cangany's testimony for

use in this litigation. 17 Indeed, in Plaintiffs Initial Disclosures

provided to Defendants, Plaintiff

specifically represented that the testimony may be used in support of its claim -

admission ofthe testimony's purpose. 18

a clear

In similar circumstances, Plaintiffs improper attempts to obtain "investigative" testimony

for use in a quasi-judicial proceeding were rejected.

For example, in In Matter of Morgan Asset

Mgrnt., Inc., Admin. Proceeding File No. 3-13847, at 1 (July 12, 2010), the SEC issued an Order

17 To the extent the Court wishes to review Mr. Cangany's testimony, Defendants will submit same to the Court for

in camera review.

18 Yingling Aff., ~9.

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Instituting Proceedings ("OIP") on April 7, 2010 against the respondents, following nearly two

years of investigation. 19

Eight days after

issuing the OIP, the SEC commenced a second

investigation and issued six subpoenas for documents and testimony.

Id.

The respondents

sought relief under Rule 230(g) of the Rules of Practice of the Securities and Exchange

Commission and asserted that the second investigation was "functionally identical" to the

pending administrative proceedings, and that the second investigation was authorized "for the

impermissible purpose of gathering additional evidence for use at the hearing in the present

proceeding." Id.

The Administrative Law Judge ("ALJ") found that there was substantial overlap

between the OIP and the second investigation.

As such, the ALJ found, "[i]t is evident that the

Division would benefit from taking investigative testimony from the six directors at this juncture.

By doing so, it could lock the witnesses into their respective stories, and a tentative or potentially

hostile witness who changed his/her testimony at the hearing would then risk impeachment." I d.

at 2. Thus, the ALJ concluded, "[f]or reasons not explained on the record, the Division elected to

follow a high-risk strategy: it asked the Commission to issue the OIP before it had completed the

relevant parts of its investigation.

The Division is free to take this sort of risk, of course, but it

cannot

now

ask

consequences."

for

a

ruling

that,

in

effect,

guarantees

that

it

will

suffer

no

adverse

Id.

at 2-3.

As a result, the ALJ issued various prohibitions on the use of

documents and information derived from the second investigation. Id. at 4.

In this case, Plaintiff did not even attempt to camouflage its "investigation" by instituting

a new investigation, as it issued the Subpoena and conducted the testimony under the same

Formal Order of Investigation it used to investigate this matter before filing suit. 20

However,

like the circumstances in the Morgan Asset Management matter, it is clear that Plaintiff fully

19 A true and correct copy of the Order issued in the Administrative Proceeding is included in the Appendix as Exhibit D. 2 °Compare Yingling Aff., ~5, with Exhibits 1 and 3 to Yingling Aff.

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intended to use Mr. Cangany's testimony in this matter at the time it took his testimony.

Plaintiff

should not be rewarded for employing this "high-risk strategy."

What is perhaps most troubling about the testimony at issue is the following statement

made by Plaintiffs employee prior to the questioning of Mr. Cangany:

BY MR. D. KING:

Q This is an investigation by the Commission in the matter of Life

Partners, Inc., and Life Partners Holdings, Inc., number FW-3501, to

determine whether there have been violations of certain provisions of the

federal securities

(Emphasis added).

Thus, according to Plaintiff, fifteen (15) days after this lawsuit was filed, Plaintiff still had not

determined whether or not there had been violations of "certain provisions of the federal

securities laws."

Such an admission clearly calls into question whether Plaintiff, when it filed

this action, had "evidentiary support" for the "factual contentions" it made in the Complaint.

Obviously, if it did not, and was (and is) still in search of violations, Plaintiff failed to satisfy

Rule 11 from the outset of this case.

In any event, however, Plaintiff cannot seriously dispute that discovery in this matter is

subject to the provisions of the Federal Rules of Civil Procedure. As Rule 1 so clearly provides:

These rules govern the procedure in all civil actions and proceedings in the

United States district courts

(Emphasis added).

Thus, Plaintiff cannot, on the one hand, utilize the judicial system in the furtherance of its

enforcement purposes while, on the other hand, evade the application of the rules governing that

very same judicial system.

As one court has so aptly stated, when addressing the SEC's

proclivities to avoid compliance with a court's order:

"[B]asic principles underlying the judiciary

do not allow the executive branch to overrule the courts in matters properly within the courts'

jurisdiction."

SEC v. Blinder, Robinson & Co., Nos. 83-K-668, 83-B-668, 1987 U.S. Dist.

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LEXIS 14741, at *13 (D. Colo. Dec. 2. 1987).

Likewise, in this case, Plaintiff cannot seek to

"overrule" or ignore the Federal Rules of Civil Procedure by conducting discovery under the

auspices of an "investigation."

"The SEC consciously embarked on a course of conduct that

placed its judgment above that of [this] court" when it determined to subpoena, and take the

testimony of, Mr. Cangany. See id at *17. Such conduct cannot be tolerated.

IV. RELIEF SOUGHT

"The district courts wield their various sanction powers at their broad discretion."

Mick

Haig, 2011 U.S. Dist. LEXIS 128366, at* 9 (quoting Topalian v. Ehrman, 3 F.3d 931, 934 (5th

Cir.

1993)).

Plaintiffs

conduct

was

egregious,

intentional

and

clearly

sanctionable.

Accordingly, Defendants seek the following relief:

An Order prohibiting Plaintiff from using any of the documents or testimony

obtained by Mr. Cangany for any purpose, including for impeachment and for use with other ·witnesses, in this litigation or any related proceedings initiated against any Defendant;

(1)

(2) An Order requiring Plaintiff to disclose to the Court and to Defendants any other subpoenas, testimony, or other discovery that Plaintiff has undertaken since January 3, 2012 to present;

(3) To the extent Plaintiff claims it has not conducted any further extra-judicial discovery, a written representation of same made under oath by Plaintiff and filed with the Court and served upon Defendants;

(4) An Order prohibiting Plaintiff from issuing any additional subpoenas and obtaining any additional testimony related to any or all of the Defendants without complying with the Federal Rules of Civil Procedure and this Court's Orders;

(5)

An Order awarding Defendants $5,000.00 in attorneys' fees for having to prepare

and file this Motion; and

(6)

Any such other and further relief to which Defendants may be entitled.

V. PRAYER

For each of the reasons stated herein, Defendants respectfully request that the Motion be

granted in its entirety, and that they be awarded the relief sought herein.

Case 1:12-cv-00033-JRN

LOCKE LORD LLP Jason S. Lewis State Bar No. 24007551 Email: jlewis@lockelord.com David W. Klaudt State Bar No. 00796073 Email: dklaudt@lockelord.com Adam Tyler State Bar No. 24070777 atyler@lockelord.com

2200 Ross Avenue, Suite 2200

Document 30

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Respectfully submitted,

Is/ Elizabeth L. Yingling

Elizabeth L. Yingling State Bar No. 16935975 E-Mail: elizabeth.yingling@bakermckenzie.com Laura J. O'Rourke State BarNo. 24037219 E-Mail: laura.orourke@bakermckenzie.com Will R. Daugherty State Bar No. 24053170 E-Mail: will .daugherty@bakermckenzie.com

BAKER & McKENZIE LLP

Dallas, Texas 75201

ATTORNEY FOR DEFENDANT

2300

Trammell Crow Center

Tel: (214) 740-8000

2001

Ross Avenue

Fax: (214) 756-8414

BRIAN D. PARDO

Dallas, TX 75201 Tel.: (214) 978-3000 Fax: (214) 978-3099

PATTON BOGGS LLP S. Cass Weiland State Bar No. 21081300 Robert A. Hawkins State Bar No. 00796726

2000 McKinney Ave, Suite 1700

Dallas, Texas 75201 Ph: (214)578-1500 Fax: (214) 578-1550 Email: gweiland@pattonbogygs.com Email: rhawkins@pattonboggs.com

ATTORNEY FOR DAVID M. MARTIN

J Pete Laney State Bar No. 24036942 E-Mail: jpete@jpetelaney.com LAW OFFICES OF J PETE LANEY 1122 Colorado Street, Suite 111 Austin, TX 78701-2159 Tel: (512) 473-0404 Fax: (512) 672-6123

ATTORNEYS FOR DEFENDANTS, LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN

Case 1:12-cv-00033-JRN

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CERTIFICATE OF CONFERENCE

On June 28, 2012, the undersigned conferred with counsel for Plaintiff concerning the substance of this Motion. Counsel for Plaintiff, Jason Rodgers, stated that Plaintiff opposes the relief requested herein.

By

Is/ S. Cass Weiland

CERTIFICATE OF SERVICE

I hereby certify that on July 2, 2012, I electronically filed the foregoing document with

the Clerk of the Court using the CM/ECF system, which will send notification of such filing to

all counsel who have registered with the Court. All others were served a copy via U.S. mail.

713527-vl\DALDMS

Is/ Elizabeth L. Yingling

Case 1:12-cv-00033-JRN

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UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

SECURITIES AND EXCHANGE COMMISSION, :

v.

Plaintiff,

LIFE PARTNERS HOLDINGS, INC., BRIAN PARDO,R.SCOTTPEDEN,AND DAVID M. MARTIN

Defendants.

Civil Action No.: 1-12-cv-00033

APPENDIX IN SUPPORT OF DEFENDANTS' MOTION FOR SANCTIONS

Exhibit

Description

A

Affidavit of Elizabeth L. Yingling

A-I

Subpoena to Peter T. Cangany, Jr.

A-2

Redacted Questionnaire

A-3

Pages from Peter T. Cangany, Jr.'s testimony of January 26,

2012

B

Affidavit of Jason S. Lewis

C

Affidavit ofS. Cass Weiland

D

Order issued in In the Matter of Morgan Asset Mgmt.,

Inc.

Admin. Proceeding File No. 3-13847 (July 12, 2010)

Case 1:12-cv-00033-JRN

LOCKE LORD LLP Jason S. Lewis State Bar No. 24007551 Email: jlewis@lockelord.com David W. Klaudt

State Bar No. 00796073 Email: dklaudt@lockelord.com

2200 Ross Avenue, Suite 2200

Dallas, Texas 75201 Tel: (214) 740-8000 Fax: (214) 756-8414

Document 30-1

Filed 07/02/12

Page 2 of 38

Respectfully submitted,

Is/ Elizabeth L. Yingling

Elizabeth L. Yingling State Bar No. 16935975 E-Mail: elizabeth.yingling@bakermckenzie.com Laura J. O'Rourke State Bar No. 24037219 E-Mail: laura.orourke@bakermckenzie.com Will R. Daugherty State Bar No. 24053170 E-Mail: will.daugherty@bakermckenzie.com

BAKER & McKENZIE LLP

 

2300

Trammell Crow Center

ATTORNEY FOR DEFENDANT

2001

Ross Avenue

BRIAN D. PARDO

Dallas, TX 75201 Tel.: (214) 978-3000

PATTON BOGGS LLP S. Cass Weiland State Bar No. 21081300 Robert A. Hawkins

State Bar No. 00796726

2000 McKinney Ave, Suite 1700

Dallas, Texas 75201 Ph: (214)578-1500 Fax: (214) 578-1550 Email: gweiland@pattonbogygs.com Email: rhawkins@pattonboggs.com

ATTORNEY FOR DAVID M. MARTIN

Fax: (214) 978-3099

J Pete Laney

State Bar No. 24036942 E-Mail: jpete@jpetelaney.com LAW OFFICES OF J PETE LANEY

1122 Colorado Street, Suite Ill

Austin, TX 78701-2159

Tel: (512) 473-0404 Fax: (512) 672-6123

ATTORNEYS FOR DEFENDANTS, LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN

CERTIFICATE OF SERVICE

I hereby certify that on July 2, 2012, I electronically filed the foregoing document with

the Clerk of the Court using the CM/ECF system, which will send notification of such filing to

all counsel who have registered with the Court. All others were served a copy via U.S. mail.

713713-vl\DALDMS

Is/ Elizabeth L. Yingling

Case 1:12-cv-00033-JRN

Document 30-1

Filed 07/02/12

Page 3 of 38

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

SECURITIES AND EXCHANGE COMMISSION, :

v.

Plaintiff,

LIFE PARTNERS HOLDINGS, INC., BRIAN PARDO,R.SCOTTPEDEN,AND DAVID M. MARTIN

Defendants.

Civil Action No.: 1-12-cv-00033

AFFIDAVIT OF ELIZABETH L. YINGLING

STATE OF TEXAS

§

§

COUNTY OF DALLAS

§

BEFORE ME,

the

undersigned authority,

personally

appeared,

Elizabeth L.

Yingling, who being personally known to me and after being duly sworn on oath, states

as follows:

1. "My name is Elizabeth L. Yingling.

I am over 18 years of age and am fully

competent and authorized to make this Affidavit.

I have personal knowledge of every

fact stated in this Affidavit, each of which is within my personal knowledge and is true

and correct.

I am submitting this Affidavit in support of Defendants'

Motion for

Sanctions.

2. I am an attorney in good standing, licensed to practice law in the State of

Texas by the Supreme Court of Texas, and I have continuously practiced law in Texas

since my licensing in November, 1991.

I am also licensed to practice law in all federal

AFFIDAVIT OF ELIZABETH L. YINGLING- Page 1

713560-vl\DALDMS

1991. I am also licensed to practice law in all federal AFFIDAVIT OF ELIZABETH L. YINGLING-

Case 1:12-cv-00033-JRN

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Page 4 of 38

courts in the State of Texas.

I am Principal with the Dallas office of Baker & McKenzie,

LLP ("Baker & McKenzie"), 2001 Ross Avenue, Suite 2300, Dallas, Texas 75201.

3. I am Lead Counsel for Life Partners Holdings, Inc. ("LPHI") and R. Scott

Peden ("Peden") in the above-styled and numbered cause.

I was counsel for LPHI,

Peden,

Life

Partners,

Inc.

("LPI"),

Brian

Pardo

("Pardo"),

and

David

M.

Martin

("Martin") in connection with the investigation conducted by the Fort Worth office ofthe

Securities and Exchange Commission ("SEC") of LPHI and LPI, which investigation

ultimately lead to this lawsuit.

4. In June, 2010, LPHI and LPI were notified by the SEC that the SEC was

conducting an informal inquiry of those entities.

5. Thereafter,

on

September

3,

2010,

the

SEC

issued a

Formal

Order of

Investigation styled In the Matter of Life Partners, Inc. and Life Partners Holdings, Inc.,

FW-03501.

In general terms, the Formal Order of Investigation stated that the SEC was

investigating whether violations of certain provisions of the federal securities laws had

occurred.

The SEC's investigation included the issuing of numerous subpoenas to my

clients for the production of documents and for testimony.

6. The SEC instituted this action on January 3, 2012.

7. Neither LPHI, Peden nor myself received notice of the Subpoena issued to

Peter T. Cangany, Jr. dated January 10, 2012.

Nor did LPHI, Peden or myself receive

notice that Mr. Cangany's testimony was to take place on January 18, 2012 in the SEC's

office.

Accordingly, I was unable to attend Mr. Cangany's testimony and cross-examine

the witness.

AFFIDAVIT OF ELIZABETH L. YINGLING- Page 2

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Case 1:12-cv-00033-JRN

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Page 5 of 38

8. On May 31, 2012, I, along with Jason Lewis, of Locke Lord LLP, Cass

Weiland, of Patton Boggs LLP, and Jason Rodgers, of the SEC, held a telephonic Rule

26(f) conference and reached agreement regarding various discovery issues, including the

date to exchange Initial Disclosures.

9. On June 8, 2012, each of the parties exchanged their respective Initial

Disclosures.

Page 17 of the SEC's Initial Disclosures identified the January 18, 2012

Cangany Testimony as information that the SEC "may use to support its claims and

defenses" in this case.

10. On June 4, 2012, Plaintiff sent a CD to me containing the transcripts of

testimony taken by the SEC during its investigation, as well as the exhibits related

thereto.

11. That CD included Exhibit 133, which is the January 10, 2012 Subpoena issued

to Mr. Cangany.

A true and correct copy of Exhibit 133, as produced by the SEC, is

attached hereto as Exhibit 1.

12. In

addition,

that

CD

also

included Exhibit

135,

which

was

apparently

introduced during Mr. Cangany's testimony, which is entitled "Abbreviated Background

Questionnaire."

The handwriting indicates that the Questionnaire was for Mr. Cangany

and it is dated January 17, 2012. A true and correct redacted copy of the questionnaire is

attached hereto as Exhibit 2. Mr. Cangany's personally-identifiable information has been

redacted, which includes his address, date of birth, Social Security Number, spousal

information, and other background information.

13. Also included in the CD provided by the SEC was the condensed transcript of

Mr. Cangany's testimony.

A true and correct copy of the first three pages of the

AFFIDAVIT OF ELIZABETH L. YINGLING- Page 3

713560-vl\DALDMS

Case 1:12-cv-00033-JRN

Document 30-1

Filed 07/02/12

Page 6 of 38

transcript, as well as a copy of the last page of the transcript showing the time the

testimony was concluded is attached hereto as Exhibit 3."

Further Affiant sayeth not.

hereto as Exhibit 3." Further Affiant sayeth not. Sworn to and subscribed before me by June,

Sworn to and subscribed before me by June, 2012.

My Commission~E~xp:i~re~s~:;;;;;;;;;;;;;'It

2012. My Commission~E~xp:i~re~s~: ;;;;;;;;;;;;;'It PMiD. SAVAGE MY COMMISSION EXPIRES Febn181Y13,2016

PMiD. SAVAGE

MY COMMISSION EXPIRES

Febn181Y13,2016

AFFIDAVIT OF ELIZABETH L. YINGLING- Page 4

713560-vl\DALDMS

Case 1:12-cv-00033-JRN

Document 30-1

Filed 07/02/12

Case 1:12-cv-00033-JRN Document 30-1 Filed 07/02/12 Page 7 of 38 SUBPOENA UNITED STATES OF AMERICA SECURITIES

Page 7 of 38

SUBPOENA

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

In the Matter of Life Partners, Inc. and Life Partners Holdings, Inc. (FW-3501)

To:

Peter T. Cangany, Jr. c/o Thomas L. Riesenberg, Esq. Emst & Young LLP 1101 New York Avenue, N.W. Washington D.C. 20005

~ YOU MUST TESTIFY before officers of the SecUJitics and Exchange Commission, at the place, date and time specified below.

801 CheiTy Street, 19th Floor, Fort Worth, Texas 76102, Janua1·y 18, 2012 at 9:00am, CST.

Worth, Texas 76102, Janua1·y 18, 2012 at 9:00am, CST. 0 YOU officers ofthe Securities and Exchange

0 YOU

officers ofthe Securities and Exchange Commission, at the place, date and time specified below.

MUST PRODUCE everything specified in the Attachment to this subpoena to

FEDERAL LAW REQUIRES YOU TO COMPLY WITH THIS SUBPOENA. Failure to comply may subject you to a fine and/or imprisonment.

By: Dav~(L9

Enforcement Accountant Securities and Exchange Commission Division of Enforcement (817) 900-2604

Date:

January I 0, 20 12

FW-03501.LIFE PARTNERS EXH.IBIT~· 133N~\
FW-03501.LIFE PARTNERS
EXH.IBIT~·
133N~\

I am an officer of the Securities and Exchange Commission authorized to issue subpoenas in this matter. The Securities and Exchange Commission has issued a formal order authorizing this investigation under Section 20(a) of the Securities Act of 1933 and Section 21 (a) of the Securities Exchange Act of 1934.

NOTICE TO WITNESS:

If you claim a witne~s fee or mileage, ~uhmit this subpoena with the claim voucher

EXHIBIT

Case 1:12-cv-00033-JRN

Document 30-1

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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Page 8 of 38

Supplemental Information for Persons Requested to Supply Information Voluntarily or Directed to Supply Information Pursuant to a Commission Subpoena

A. False Statements and Documents

Section 1001 of Title 18 of the United States Code provides as follows:

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and Willfully falsifies. conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined under this title or imprisoned not more than five years, or both.

B. Testimony

If your testimony is taken, you should be aware of the following:

1. Record. Your testimony will be transcribed by a reporter. If you desire to go off the record, please indicate this to the Commission employee taking your testimony, who will determine whether to grant your request. The reporter will not go off the record at your, or your counsel's, direction.

2. Counsel.

You have the right to be accompanied, represented and advised by counsel of your choice. Your

counsel may advise you before, during and after your testimony; question you briefly at the conclusion of your testimony to clarify any of the answers you give during testimony; and make summary notes during your teslimo11y solely for your use. If you are accompanied by counsel, you may consult privately.

If you are not accompanied by counsel, please aclv1se the Commission employee taking your testimony if, during the test1mony, you des1re to be accompallled, represented and advised by counsel. Your testimony will be adjourned once to afford you the opportunity to arrange to be so accompanied, represented or advised.

You may be represented by counsel wt1o also represents other persons mvolved in the Comm1ssion's investigation. This multiple representation, however. presents a potential conflict of interest if one client's mterests are or may be adverse to another's. If you are represented by counsel who also represents other persons 1nvolved in the investigation, the Commission will assume that you and counsel have discussed and resolved all 1ssues concerning possible conflicts of 1nteresl. The choice of counsel. and the responsibility for that choice, is yours.

3. Transcript Availability. Rule 6 of the Commission's Rules Relating to Investigations, 17 CFR 203.6, states:

A person who has submitted documentary evidence or testimony in a formal investigative proceeding shall be entitled, upon written request, to procure a copy of his documentary evidence or a transcript of his testimony on payment of the appropriate fees: Provided, however, That in a non public formal investigative proceeding the Commission may for good cause deny such request. In any event, any witness, upon proper Identification, shall have the right to inspect the official transcript of the witness' own testirnonyo

If you wish to purchase a copy of the transcript of your test1mony, the reporter will provide you with a copy of the appropriate form. Persons requested to supply information voluntarily will be allowed the rights rrovicled by this rule.

4. Petjury. Section 1621 of Tille 18 of the United States Code provides as follows:

Whoever

a law of the United States authorizes an oath to be administered, ti1at he will testify, declare, depose. or

certify truly

does not believe to be true

law, be filled under this title or imprisoned not more than five years or both

having taken an oath before a competent tribunal, officer, or person, in any case 111 wtlich

willfully and contrary to such oath states or subscribes any material matter which he

is guilty of perjury and shall, except as otherwise expressly provided by

5. Fiftll Amendment and Voluntary Testimony.

local or foreign administrative, civil or criminal proceeding brought by the Commiss1on or any other agency.

Information you give may be used against you in any federal, state,

SEC 1662 (09-11)

Case 1:12-cv-00033-JRN

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You may refuse, in accordance with the rights guaranteed to you by the Fifth Amendment to the Constitution of the United States, to g1ve any information that may tend to incriminate you.

If your testimony is not pursuant to subpoena, your appearance to testify is voluntary, you need not answer any question, and you may leave whenever you wish. Your cooperation is. however, appreciated.

6. Formal Order Availability. If the Commission has issued a formal order of investigation, it will be shown to you

during your testimony, at your request. If you desire a copy of the formal order, please make your request in writing.

C. Submissions and Settlements

Rule 5(c) of the Commission's Rules on Informal and Other Procedures, 17 CFR 202.5(c), states:

Persons who become involved in

statement to the Commission setting forth their interests and position in regard to the subject matter of the investigation. Upon request, the staff, 1n its discretion, may advise such persons of the general nature of the investigation, including the indicated violations as they pertain to them, and the amount of time that may be available for preparing and submitting a statement prior to the presentation of a staff recommendation to the Commission for the commencement of an administralive or Injunction proceeding. Submissions by interested persons should be forwarded to the appropriate Division Director or Regional Director with a copy to the staff members conducting the investigation and should be clearly referenced to the specific investigation to which t11ey relate. In the event a recommendation for the commencement of an enforcement proceeding is presented by the staff, any submissions by interested persons will be forwarded to the Commission in

conjunction with the staff memorandum.

investigations may, on their own initiative, submit a written

The staff of the Commission routinely seeks to introduce submissions made pursuant to Rule 5(c) as evidence in Comm1ssion enforcement proceedings, wt1en the staff deems appropriate.

Rule 5(f) of the Commission's Rules on Informal and Other Procedures, 17 CFR 202.5(f), states:

In the course of the Commission's investigations, civil lawsuits, ancl administrative proceedings, the staff, with appropriate authorization, may discuss with persons 1nvolved the cllsposilion of such matters by consent, by settlement, or in some ot11er manner. It is the policy of the CommiSSIOn, however. that the disposition of any such matter may not, expressly or impliedly, extend to any criminal charges that have been, or may be, brought against any such person or any recommendation with respect thereto. Accordingly, any person involved in an enforcement matter before tho Commission who consents, or agrees to consent, to any judgment or order does so solely for the purpose of resolving t11e claims against him in that investigative, civil, or administrative matter and not for the purpose of resolving any criminal charges that have been, or might be, brought against him. Tl1is policy reflects tho fact that neither the Commission nor its staff has the authority or responsibility for instituting, conducting, settling, or otherwise disposing of criminal proceedings. That authority and responsibility are vested in the Attorney General and representatives of the Department of Justice.

D. Freedom of Information Act

The Freedom of Information Act, 5 U.S.C. tib2 (the "FOIA"), generally prov1des for disclosure of information to the public. Rule 83 of the Commission's Rules on Information and Requests, 17 CFR 200.83, provides a procedure by which a person can make a written request that information submitted to the Commission not be disclosed under the FOIA. That rule states that no determination as to the validity of such a request will be made until a request for disclosure of the information under the FOIA is received. Accordingly, no response to a request that information not be disclosed under the FOIA is necessary or will be given until a request for disclosure under the FOIA is received. If you desire an acknowledgment of receipt of your written request that information not be disclosed under the FOIA, please provide a duplicate request, together with a stamped, self addressed envelope.

E. Authority for Solicitation of Information

Persons Directed to Supply Information Pursuant to Subpoena. The authority for requiring production of informat1on is set forth in the subpoena. Disclosure of the information to the Commission is mandatory, subject to the valid assertion of any le9al ri9ht or privilege you might have

Persons Requested to Supply Information Voluntarily. One or more of the following provisions authorizes the Commission to solicit the information requested: Sections 19 and/or 20 of the Secunlles Act of 1933; Section 21 of the Securities Exchange Act of 1934; Section 321 of the Trust Indenture Act of 1939; Section 42 of the Investment

2

Case 1:12-cv-00033-JRN

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Company Act of 1940; Section 209 of the Investment Advisers Act of 1940; and 17 CFR 202.5. Disclosure of the requested information to the Commission is voluntary on your part.

F. Effect of Not Supplying Information

Persons Directed to Supply Information Pursuant to Subpoena. If you fail to comply with the subpoena, the Commission may seek a court order requiring you to do so. If such an order is obtained and you thereafter fail to supply the information, you may be subject to civil and/or criminal sanctions for contempt of court. In addition, if the subpoena was issued pursuant to the Securities Exchange Act of 1934, the Investment Company Act of 1940, and/or the Investment Advisers Act of 1940, and if you, without just cause, fail or refuse to attend and testify, or to answer any lawful inquiry, or to produce books, papers, correspondence, memoranda, and other records in compliance with the subpoena, you may be found guilty of a misdemeanor and fined not more than $1,000 or imprisoned for a term of not more than one year, or both.

Persons Requested to Supply Information Voluntarily. There are no direct sanctions and thus no direct effects for failing to provide all or any part of the requested information.

G. Principal Uses of Information

The Commission's principal purpose in soliciting the 1nformat1on is to gather facts in order to determine whether any person has violated, is violating, or is about to violate any provision of the federal securities laws or rules for which the Commission has enforcement authority, such as rules of securities exchanges and the rules of the Municipal Securities Rulemaking Bonrd. Facts developed may, however, const1tute violations of other laws or rules lnform<Jtion provided may be used in Commission and other agency enforcement proceedings. Unless the Commission or its staff explicitly agrees to the contrary 1n writ1ng. you should not assume that the Commission or its staff acquiesces in, accedes to, or concurs or agrees with, any position, condition, request, reservation of right, understanding, or any other statement that purports, or may be deemed, to be or to reflect a limitation upon t11e Commission·s receipt, use. disposition, transfer, or retention, in accordance with applicable law, of information provided.

H. Routine Uses of Information

The Commission often makes its files available to other governmental agencies, particularly United States Attorneys

and state prosecutors.

where appropriate. Whether or not the Commission makes 1ts file~ available to other governmental agenc1es is, 10

general, a confidential matter between the Commiss1on and such other governmental agencies.

rhere IS a likelihood that 1nformat1on supplied by you will be made available to sucl1 agenc1es

Set forth below is a list of the routine uses which may be made of the information furnished.

1. To appropnate agenctes, entities, and persons when (a) 1t is suspectecl or confirmed t11at the security or

confldenti<Jiity of information in the system of records has been compromised; (b) the SEC has detetrnined that, as a result of the suspected or confirmed compromise, there is a risk of ttarrn to economic or property interests, identity t11eft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the SEC or another agency or entity) that rely upon the compromised information; and (c) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the SEC's efforts to respond to the suspected or confirmed comprom1se and prevent, minimize, or remedy such harm.

2. To other federal, state, local, or foreign law enforcement agencies; securities self-regulatory organizations; and

foreign financial regulatory authorities to assist in or coordinate regulatory or law enforcement activities with the SEC.

3 To national securities exchanges and national securities associations that are registered with the SEC, the

Municipal Securities Rulemaking Board; the Securities Investor Protection Corporation; the Public Company Accounting Oversight Board; the federal banking authorities, including, but not limited to, the Board of Governors of the Federal Reserve System, tt1e Comptroller of the Currency, and the Federal Deposit Insurance Corporation; state

securities regulatory agencies or organizations; or regulatory authorities of a foreign government in connection with their rcgulntory or enforcement responsibilities

4. By SEC personnel for purposes of investigating possible violations of, or to conduct investigations authorized by,

the federal securities laws.

5. In any proceeding where the federal securities laws are in issue or in which the Commission, or past or present

members of its staff, is a party or otherwise involved in an official capacity.

6. In connection with proceedings by the Commission pursuant to Rule 102(e) of its Rules of Practice, 1l erR

201.102(e).

3

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7. To a bar association, state accountancy board, or other federal, stale, local, or foreign licensing or oversight

authority; or professional association or self-regulatory authority to the extent that it performs similar functions

(including the Public Company Accounting Oversight Board) for investigations or possible disciplinary action.

8. To a federal, state, local, tribal, foreign, or international agency, if necessary to obtain information relevant to the

SEC's decision concerning the hiring or retention of an employee; the issuance of a security clearance; the letting of

a

contract; or the issuance of a license, grant, or other benefit.

9.

To a federal, plate, local, tribal, foreign, or international agency in response to its request for information

concerning the hiring or retention of an employee; the issuance of a security clearance; the reporting of an investigation of an employee; the letting of a contract; or the issuance of a license, grant, or other benefit by the requesting agency, to the extent that the information is relevant and necessary to the requesting agency's decision on

the matter.

10. To produce summary descriptive statistics and analytical studies, as a data source for management information,

in support of the function for which the records are collected and maintained or for related personnel management

functions or manpower studies; may also be used to respond to general requests for statistical information (without

personal identification of individuals) under the Freedom of Information Act.

11. To any trustee, receiver, master, special counsel. or other individual or ent1ty that is appointed by a court of

competent jurisdiction. or as a result of an agreement between the parties in connection with litigation or admilllslrative proceedings involving allegations of violations of the federal securities laws (as defined in sect1on 3(a)( 47) of the Securities Exchange Act of 1934, 15 U S C 78c(a)( 47)) or pursuant to the Commission's Rules of Practice, 17 CFR 201.100- 900 or the Commission's Rules of Fair Fund and Disgorgement Plans, 17 CFR 201.1100-1106, or otherwise, where such trustee, rece1ver, master, special counsel, or other Individual or entity IS specifically designated to peliorm particular functions with respect to, or as a result of, the pending action or proceeding or in connection with the administration and enforcement by the Commission of the federal securities laws or the Commission's Rules of Practice or the Rules of Fair Fund and Disgorgement Plans.

12. To any persons during the course of any inqu1ry, examination. or investigation conducted by the SEC's staff. or in

connecllon with civil litigation, rf the staff has reason to believe that the person to whom the record is disclosed may

have further information about the matters relatecl therein, and those matters appeared to be relevant at Ihe time to the subject matter of the inquiry.

13. To 1ntcrns, grantees. experts. contractors, and ott1ers wt1o have been engaged by the Commission to assist in

the performance of a service related to this system of records and who need access to the records for the purpose of

assisting the Commission in the efficient administration of its programs. rncluding by performing clerical, stenographic, or data analysrs functions, or by reproduction of records by electronic or other means. Recipients of these records shall be requrred to comply with the requirements of the Privacy Act of 1974, as amended. 5 U.S.C.

552a.

14

In reports pllblished by the Commission pursuant to authority granted in the federal securities laws (as such term

is

defined in section 3(a)(47) of t11e Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(47)), which authority shall

1nclude, but no\ be limited to, section 21 (a) of the Securities Exchange Act of 1934, 15 U.S.C. 78u(a)).

15. To members of advisory committees that are created by the Commission or by Congress lo render advice and

recommendations to tt1e Commiss1on or to Congress, to be used solely in connection with their offic1al designated

functions.

1G. To any person who is or t1as agreed to be subject to the Commission's Rules of Conduct, 17 Cf'R 200.735-1 to 200.735-18, and who assists in the investigation by the Commission of possible violations of the federal securities Jaws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1g34, 15 U.S.C. 78c(a)(47)), in the preparation or conduct of enforcement actions brougl1t by the Commission for such violations. or otherwise in connection with the Commission's enforcement or regulatory functions under the federal securities laws.

17. To a Congressional office from the record of an individual in response to em inquiry from the Congressional office

made at the request of that individual.

18. To members of Congress. the press, ancl the public in response to inquines relating to particular Registrants and

their activities, and other matters under the Commission's jurisdiction.

19. To prepare and publish information relating lo violations of the federalsec:urilies laws as provided in 15 U.S.C.

78c(a)(47)), as amended.

20. To respond to subpoenas in any lit1gallon or other proceeding.

4

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21. To a trustee in bankruptcy.

22. To any governmental agency, governmental or private collection agent, consumer reporting agency or

commercial reporting agency, governmental or private employer of a debtor, or any other person, for collection,

including collection by administrative offset, federal salary offset, tax refund offset, or administmtivc wage

garnishment, of amounts owed as a result of Commission

civil or administrative proceedings.

Small Business Owners: The SEC always welcomes comments on how it can better assist small businesses. If you have comments about the SEC's enforcement of the securities laws, please contact the Office of Chief Counsel in the SEC's Division of Enforcement at 202-551-4933 or the SEC's Small Business Ombudsman at 202-551-3460. If you would prefer to comment to someone outside of the SEC, you can contact the Small Business Regulatory Enforcement Ombudsman at http://www.sba.gov/ombudsman or toll free at 888-REG-FAIR. The Ombudsman's office receives comments from small businesses and annually evaluates federal agency enforcement activities for their responsiveness to the special needs of small business.

5

Case 1:12-cv-00033-JRN

01/17/2012

12

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Document 30-1

Filed 07/02/12

BAKER

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DALLAS

Page 13 of 38

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BAKER

BOTTS

Filed 07/02/12

DALLAS

Page 14 of 38

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Filed 07/02/12 DALLAS Page 14 of 38 ~ 0 0 4 / 0 1 2 (>.

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:1nd (Ill) thi: date~ yo~1 h<:IJ each position. 7. y,~:; .N(. Are )'<1\1 Jl(>w, or hav<:

7.

y,~:;.N(.

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percent m nH.H'e of' ~my class <>f' o:quity ~;e,·uriti~·s of :tnv publidy lll.:!d <.:omp:my'.'

Ir yc.~s. HkntJt'y <.:nch su<:h nnnpany. :\<:~:urily. :111d 'ilatl' tht: .unnunl. pt

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01/17/2012

Case 1:12-cv-00033-JRN

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BOTTS

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DALLAS

Page 15 of 38

141005/012

BAKER BOTTS Filed 07/02/12 DALLAS Page 15 of 38 141005/012 K. !lave you :vcr k:-;tific.:J 111

K.

!lave you

:vcr

k:-;tific.:J 111 nny pi<H:r

:l:Jing

cunducl<.:d hv the ~talluCth<:' Sccurili<.:s ;Jnd

Exchang.; Commissllll\, :"lllLllh~;:r l~·deral agency. :1 state :Jf',l:m:y. a I"<:Jcral (If .-.;t:tk c()urt. :1

~tnck e.xc.:hange, f--"lll•Hlc:ial lndu.\try RL'!;\tdntory ;\ utlh't it .'r ( Fl N R 1\ ). 1he N:lt fl)ll;d

1\sso

(''Sf\0"), or in nny arbitration procueding related to sccllrities trunsactium:·•

Yc.:s.No-

:inlion

of S<:curitit

:s

Dc:dc.:rs ("NASD'") or any other -.;df~rcgul~ttoryurganintion

[f'yes, fnr t.:nch Slll'h proceeding. idt:.ntify:

(J) tht.! title of the.: proccc.:ding; (ii) tlw

org~wi7.:ltion ur ag<:.n<:y; and (iii) !hi:' datt:(s) on whid1 you tcstiliL·\1.

and (iii) !hi:' datt:(s) on whid1 you tcstiliL·\1. proc< <:ourt, (iii) tlw '-'llbJt:L:t
and (iii) !hi:' datt:(s) on whid1 you tcstiliL·\1. proc< <:ourt, (iii) tlw '-'llbJt:L:t

proc< <:ourt, (iii) tlw '-'llbJt:L:t \'llH!tct c.>l"yo\fr te::nirnony. :111<! (I\·) rlic d:1tds) on whtch \'nil WLT':

dcpost.:d.

For t:?nch such

tdentity: (i) til<: title

:

or tlw prc.lL'l'<.:dmg. and (ii} lh<

·

n~ln1l'o{'lhc

~<:.ding.

(i) til<: title : or tlw prc.lL'l'<.:dmg. and (ii} lh< · n~ln1l' o{'lhc ~<:.ding.

01/17/2012

Case 1:12-cv-00033-JRN

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Document 30-1

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BOTTS

Filed 07/02/12

DALLAS

I 0.

I Ln 1.: you l'Ver hcvn rntll1L'd :1~ a 'kf,•ndant ,,r t·c.:spondc:nl in :11w a

:riott

Page 16 of 38

PI' pr(lc:c:~;·d1ng

i4J008!012

hr!iught by the SI'C'. <tny oth~.:r kd,•ral a~cm:y," st:1te -;~.:cuntit.•s:-tgcnt.':-'· I·INR.:\. th~:·

II.

:--.:i\SD. ,,r :ll\y :-.t,,c:k

v.-.;,:llangt.•'.'

y,.s

~~~-

lf"y<.:s, f\1r cth.:ll sud1 proceeding. 1dcnt1fy:

(I) the title P!'thv prucced111g.

(II) tiH: ;Jgency

l)r lrihuna!: (itt) th~:•substan~:c of the nlkgatil•ns:

(v) tbc date of the out<::orne.

(I\') th~: PLIICnllH: olthc prtlt:et·ding; and

ll'ycs. l(>r r.;:tdl such pr0CCL'ding. tdcnrit'y:

til thl' tJti<: ufdH.: pn•c:n:dtng: (tilth<.· <:uun or

triburw!; {iti) the out<.:ume of tile prllC.:t::t:dtng; illld (tv) the Jat<: o!'tht.! outcr>tl\l'.

01/17/2012

Case 1:12-cv-00033-JRN

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Document 30-1

BAKER

BOTTS

Filed 07/02/12

DALLAS

!!"yes, l(•r L~:H:h such [Jr\H.'L'cding, t<ki\IJI) · It) the I ilk •'filh: pn>c'ecdttle.

Page 17 of 38

(JiJ

the L'<.>tJr'l ••r

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(IVilht: daft' ot rl11.: \lllll'l>JJJL'. If yes, l<.lr L!:t\.'h :w~:h licctl~~:.

If yes, l<.lr L!:t\.'h :w~:h licctl~~:. identi(y: (I) rhv iln·ns<.:; (JI) the ltccnsing org;llli/.;J{I\111; (iii)

the <kit<.: tht: lic.;nse wn:; uw~trded: (tv) tile d:JI<: such h~:c•n;;~.·tt:rn11nated, il'appl~>.:abk: lv)

the

datt:(SJ uf any dJ-:ciplin;try pr<:>c<:L'ding(s) :11:~ainst yuu: :tnd (Yi) thL· <l\ltconw uf ;HJ:V

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Case 1:12-cv-00033-JRN

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BAKER BOTTS

Filed 07/02/12

OALLAS

Page 18 of 38

f4J 008/012

BAKER BOTTS Filed 07/02/12 OALLAS Page 18 of 38 f4J 008/012 Datu of D11te of 0.1lt'J(!:i)

Datu of

D11te of

0.1lt'J(!:i) ur i;>ny

Outcornu ul

LtC~HISt:! or Licent.o or DiSciplinary LiCtli1Sir'l9 Ct·)rtifiCt1lion Cortificotkm Prucdd1n9~; Orqanr.'
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Case 1:12-cv-00033-JRN

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BOTTS

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DALLAS

Page 19 of 38

!41008/012

BAKER BOTTS Filed 07/02/12 DALLAS Page 19 of 38 !41008/012 lfy<.'S, li:--t t(H' L':lcil· (1) the

lfy<.'S, li:--t t(H' L':lcil· (1) the 1\:Jlll<: ul'tlit: t:luh ''f

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high school.

with till~ mo-;t tl.Tt.:nt :111d \'nrrking hud.w.ml to tho.: dail' lh:l\ !l'tJ :umpktcd, high school.
with till~ mo-;t tl.Tt.:nt :111d \'nrrking hud.w.ml to tho.: dail' lh:l\ !l'tJ :umpktcd, high school.

01/17/2012

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BAKER

BOTTS

Filed 07/02/12

DALLAS

Page 20 of 38

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Case 1:12-cv-00033-JRN

01/17/2012

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2148538503

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Filed 07/02/12

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BOTTS

DALLAS

Page 21 of 38

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Case 1:12-cv-00033-JRN

01/17/2012

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BAKER

BOTTS

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DALLAS

Page 22 of 38

141012/012

Plca:;c date and initial each page of tiH~ questionn:1ire (indPding any additional pages ~·ou

insert) and sign the certific:ation below.

I have rend rhc fon~going document and have answered all quc:-;tions fully and frankly. The +srJSWt~rs arc complere and lntc t'o the best of my knowkdgl.'.

complere and lntc t'o the best of my knowkdgl.'. Signature: ~~~.::~~~: Date: ------'-- 1 /;? -1

Signature: ~~~.::~~~:

Date:

------'-- 1 /;? -1

·-·-··

Case 1:12-cv-00033-JRN

Document 30-1

Filed 07/02/12

Page 23 of 38

LPHI FW-3501

Cangany_Peter_20120118

Condensed Transcript

Prepared by:

SEC

sec

Thursday, January 26, 2012

Page 23 of 38 LPHI FW-3501 Cangany_Peter_20120118 Condensed Transcript Prepared by: SEC sec Thursday, January 26,
Page 23 of 38 LPHI FW-3501 Cangany_Peter_20120118 Condensed Transcript Prepared by: SEC sec Thursday, January 26,

Case 1:12-cv-00033-JRN

Document 30-1

Filed 07/02/12

Page 24 of 38

 

Page 1

Page 3l

1

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

C 0

N T E N T S

 

2

2

3

In the Matter of:

 

3 WITNESSES

 

EXAMINATION

I

4

) File No. FW-03501-A

4

Peter T. Cangany, Jr

 

5

 

5

LIFE PARTNERS, INC., AND LIFE

)

5

6

PARTNERS HOLDINGS, INC.

6

EXHIBITS:

DESCRIPTION

IDENTIFIED

7

7

133

Subpoena

 

7

8

WITNESS: Peter T. Cangany, Jr.

8

134

Subpoena

7

9

PAGES: 1 through 246

9

135

Background questionnaire 10

10

PLACE: U.S. Securities and Exchange Commission

10

136

E-mail Jun 7 11 from

G Lewis

13

11

801 Cherry Street, 19th Floor

11

137

E-mail Jun 6 11 from

S Donohue

33

12

Fort Worth, TX

12

138

E-mail Aug 18 10 from M Rafferty 42

13

DATE: Wednesday, January 18,2012

13

139

Evidence Document 102 51

14

14

140

E-mail

Mar 28 10 to G Lewis

62

15

The above-entitled matter came on for hearing,

15

141

E-mail exchange G Lewis & Eide Bailly

65

16

pursuant to notice, at 9:05a.m.

16

142

Excerpt from 2010 audit work papers

76

17

17

143

Business template for 2010 audit 89

18

18

144

Evidence Document 100 105

19

19

145

Copy

of electronic file

115

20

20

146

Audit Evidence No. 126

119

21

21

147

Evidence Document 127

133

22

22

148

Evidence Document 128

139

23

23

149

Excerpt files, detail binder one

147

24

Diversified Reporting Services, Inc.

24

150

Evidence Document 129

151

25

(202) 467-9200

25

151

Evidence Document 132

158

Page 2

Page 4

1

APPEARANCES:

1 EXHIBITS:

DESCRIPTION

IDENTIFIED

2

2

152

Excerpt Walk-through Binder No. 1 159

3

On behalf of the Securities and Exchange Commission:

3

153

Excerpt U series & work papers

163

4

MICHAEL KING, Branch Chief

4

154

Internal E-mail re Roman Ferber

194

5

MICHAEL JACKMAN, ESQ

5

155

E-mail Mar 10 10 from P Toy

213

6

DAVID R. KING, CPA

6

156

E-Mail Jul 8 10 to D Martin

218

7

CAROL LOWEN, CPA

7

157

E-Mail

Jul

13

10 to

D Martin

220

8

Division of Enforcement

8

158

E-Mail Jul 26

10 D Martin

222

9

Securities and Exchange Commission

9

159

Letter Jul 30 10 from S Peden 224

10

801 Cherry Street, 19th Floor

10

160

Excerpt from Mr. Lewis' desk file

228

11

Fort Worth, TX 76102

11

161

Follow-up, client continuance 230

12

12

13

On behalf of the witness:

13

14

ROBB L. VOYLES, ESQ

14

15

Baker Botts LLP

15

16

2001 Ross Avenue

16

17

Dallas, TX 75201

17

18

18

19

THOMAS L. RIESENBERG, ESQ

19

20

JOHN A. THEIS, Audit Partner

20

21

Ernst & Young LLP

21

22

1101 New York Avenue, N.W.

22

23

24

Washington, DC 20005

23

24

--------------------------------------L------------------------------------- _I

25

25

Case 1:12-cv-00033-JRN

Document 30-1

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Page 25 of 38

Page 7
Page 7
 

Page 5

 
 

P R 0

C

E E D I N G S

1 counsel in representation here.

2

MR. D. KING:

We are on the record at 9:05 on

2

MR. D. KING: And Mr. Voyles, is your

3

January 18th, 2012.

3

representation of the witness as his counsel today? MR. VOYLES: Yes. BY MR. D. KING:

4

Mr. Cangany,

would you please raise your right

4

5

hand?

5

6

Whereupon,

 

6

Q

I'll just hand you a copy of what I have marked

7

PETER T. CANGANY, JR.

 

7 as Exhibit 133.

8

Having first been duly sworn, was called as a witness

8

(SEC Exhibit No. 133 was marked for identification.) And ask you, Mr. Cangany, is this-- is your

9

herein,

and was examined and testified as follows:

 

9

10

EXAMINATION

10

11

BY MR. D. KING:

 

12

Q

Please state and spell your full name for the

12

as Exhibit 133?

13

record?

 

13

A

Yes. I'll just hand you a copy of Exhibit 134, which

14

A

Peter Thomas Cangany, Jr., P-E-T-E-R

 

14

Q

15

T -H-0-M-A-S C-A-N-G-A-N-Y J-R.

15 is a copy of a letter and subpoena that went out March 16 14th, 2011.

16

Q

My name is David King and with me are Carol

17 Lowen and Michael Jackman. A little bit later today

17

(SEC Exhibit No. 134 was marked for identification.) Have you seen all or part of Exhibit 134

18 Michael King will probably also join us. We are officers

18

19 of the Commission for the purposes of this proceeding.

19

20 This is an investigation by the Commission in

20 before? And as you look at that, this is the request to

21 the matter of Life Partners, Inc., and Life Partners

 

21

Ernst and Young to produce its work papers related to the

22 Holdings, Inc., number FW-3501, to determine whether

22 2010 audit and the 2011 quarters.

23 there have been violations of certain provisions of the

23

A

Yes. And did you participate in identifying,

24 federal securities laws.

However, the facts developed in 24

Q