Abacus Global Management (ABL): Navigating the Storm of Fraud Allegations in Life Settlements

Harrison BrooksThursday, Jun 5, 2025 4:23 pm ET
33min read

The life settlements industry, long a niche but lucrative market, has become the epicenter of a high-stakes securities fraud investigation involving Abacus Global Management (ABL). At the heart of the controversy is the company's reliance on AI-generated life expectancy data from Lapetus Solutions—a practice critics argue inflated asset valuations, misled investors, and now threatens its very survival. For stakeholders, the question is clear: Is this a moment to capitalize on a beaten-down stock, or to steer clear of a potential collapse?

The Fraud Allegations: A Recipe for Disaster

The crisis began in late May 2025 when Morpheus Research published a scathing report accusing Abacus of using Lapetus's AI-derived life expectancy data to systematically understate insured individuals' longevity. By doing so, Abacus allegedly inflated its “mark-to-model” valuations, enabling it to book non-cash gains that accounted for 61% of Q1 2025 revenue—up from just 13% in 2022.

The scheme worked like this: shorter life expectancy estimates meant Abacus could “price” policies higher, creating paper gains that boosted its valuation. To amplify this effect, Abacus slashed its discount rate to 18% in Q1 2025 from 20% previously, generating an additional $28.4 million in unrealized gains. Without these adjustments, its EBITDA would have turned negative.

But the data itself is under fire. Competitors like Coventry analyzed Lapetus's estimates and found an Actual-to-Expected (A/E) ratio of 31%, meaning the real mortality rate was 3.2x higher than projected. This flaw mirrors past disasters at GWG Holdings and Life Partners Holdings, where similar accounting tricks led to multi-billion-dollar write-downs.

Valuation Collapse: The $446 Million Question

Abacus's $446 million life settlements portfolio—the cornerstone of its valuation—is now under a microscope. If Lapetus's estimates are proven unreliable, the portfolio could face a catastrophic write-down. For context, Coventry's analysis suggests policies valued at $100 million using Lapetus data might actually be worth closer to $60 million.

The stakes are existential. A 50% haircut to the portfolio would erase nearly half of Abacus's total equity. Add to this its $356 million debt burden, including $117 million due within nine months, and the company risks liquidity strain. Even worse, its acquisition of Carlisle Asset Management—a deal priced at 36x earnings—now looks like a liability, given Carlisle's history of litigation and declining profitability.

Investor Confidence: A Broken Trust

The fallout has been swift. On June 4, 2025, ABL's stock plummeted 21.5% after the Morpheus report, closing at $6.00—a 70% drop from its 52-week high.

Investors are right to be skeptical. Abacus's leadership, including co-founders with prior regulatory violations (e.g., fraud, document destruction), and its opaque relationship with Lapetus—a vendor it owns a $1 million stake in but labeled “immaterial” in filings—adds to the distrust. The lack of transparency, coupled with auditors Grant Thornton's history of missing red flags (they also audited GWG Holdings), further undermines credibility.

Regulatory Exposure: The Sword of Damocles

While the SEC has yet to formally intervene, the parallels to past cases are ominous. The SEC's whistleblower program is already incentivizing insiders to come forward, with rewards of up to 30% of recovered funds. Meanwhile, class-action lawsuits led by firms like Robbins Geller (which recovered $2.5 billion in 2024) could force Abacus to pay hefty settlements.

Worse, the company's $145 million in goodwill from the Carlisle acquisition may vanish if regulators deem the deal overpriced or based on fraudulent data. The Florida insurance regulator's prior denial of Abacus's license—due to its founders' untrustworthiness—also hints at deeper governance flaws.

Investment Strategy: Proceed with Extreme Caution

For investors, the calculus is grim:

  1. Short-Term Traders: ABL's stock may see further declines if lawsuits intensify or Lapetus's data is discredited. Consider short positions or volatility plays, but monitor closely for regulatory actions.

  2. Long-Term Investors: Avoid entry until the dust settles. Key milestones include:

  3. Resolution of Lapetus's data accuracy.
  4. Outcomes of class-action lawsuits and SEC probes.
  5. A potential write-down of the life settlements portfolio.

  6. Current Holders: Sell if you lack risk tolerance. The company's cash burn ($61.6 million negative operating cash flow in Q1 2025) and debt load leave little room for error.

Conclusion: A Cautionary Tale for Life Settlements

Abacus's saga underscores the fragility of life settlements—a sector where opaque valuations and reliance on black-box AI models create systemic risks. While the stock's current price might tempt bargain hunters, the likelihood of a full recovery hinges on factors beyond Abacus's control: regulatory scrutiny, investor trust, and the accuracy of Lapetus's data.

For now, the advice is clear: tread carefully. The storm may still be brewing.