(Bloomberg News) Life Partners Holdings Inc., an acquirer of life-insurance policies, was sued by U.S. regulators along with three of its executives over allegations of fraudulent statements, improper accounting and insider trading. The shares plunged 20 percent.

The U.S. Securities and Exchange Commission said the Waco, Texas-based company underestimated life expectancies used in its transactions, according to a statement issued today by the agency. The SEC named Chairman and Chief Executive Officer Brian D. Pardo; R. Scott Peden, who is president and general counsel; and David M. Martin, the chief financial officer.

The faulty statements and improper accounting were used to overvalue assets and create the appearance of "a steady stream of earnings," the SEC said. Pardo sold $11.5 million of stock at inflated prices while privy to inside information, and Peden sold shares valued at $300,000, the agency said.

"It is very disappointing that the SEC has chosen to pursue litigation over issues that we believe have no merit and financial presentation issues that we do not believe are material," Pardo said in a statement. "We intend to vigorously defend ourselves against these meritless claims."

Life Partners fell 20 percent in extended New York trading today after the SEC announcement. It had declined more than 60 percent in the past 12 months at the close of regular trading.

"Life Partners duped its shareholders by employing an unqualified medical doctor to assign baseless life-expectancy estimates to the underlying insurance policies," said Robert Khuzami, chief of the SEC's Division of Enforcement, in a statement about the lawsuit filed in U.S. District Court for the Western District of Texas in Waco.

Death Benefits

Life Partners buys the right to receive death benefits from life-insurance policyholders, who get lump-sum cash payments up front. The firm continues to pay premiums, betting it will eventually collect more than it spends. The profit decreases if the insured lives longer than expected.

A call to the company for comment wasn't returned. Peden didn't immediately respond to a telephone message left at a listing under his name, in Woodway, Texas. A listing couldn't be found for Martin.