Abacus Global Management: Navigating the Storm of Accounting Allegations

The life settlements industry, long a niche but high-margin sector, has become the latest battleground for scrutiny over accounting practices. At the center of the storm is Abacus Global Management, Inc. (ABL), a $740 million alternative asset manager now under fire for alleged financial misconduct. A damning report by Morpheus Research, published in June 2025, has exposed claims of inflated profits, opaque valuations, and ties to a controversial AI-powered life expectancy provider. For investors, the question is clear: Is ABL's valuation built on solid ground—or is it a house of cards waiting to collapse?

The Accounting Allegations: A "Mark to Model" Mirage

The core of Morpheus Research's case centers on Abacus' reliance on Lapetus Solutions, a minority-owned firm whose AI-driven life expectancy models are central to Abacus' valuation process. By systematically shortening predicted life expectancies, Lapetus' reports allegedly enable Abacus to overvalue its portfolio of life settlement policies by up to 35%, according to the report.

Life settlements involve purchasing life insurance policies from terminally ill individuals, with investors profiting from the premiums and eventual death benefit payout. The shorter the predicted life expectancy, the faster the payout and the higher the asset's value—hence the incentive to manipulate these models.

Morpheus highlights that 61% of Abacus' Q1 2025 revenue stemmed from non-cash "mark to model" gains, a sharp rise from just 13% in 2022. This shift coincides with Abacus' reduced discount rate (from 20% to 18%) and its acquisition of Carlisle Asset Management—a firm with a history of fund blowups—moves that critics argue mask deteriorating fundamentals.

Legal Risks: Class Actions and Historical Parallels

The Schall Law Firm has launched an investigation into potential securities fraud, alleging Abacus made misleading statements about its financial health and valuation practices. This follows a 30% intraday stock plunge on June 4, 2025, after the report's release.

The parallels to past life settlements collapses, such as GWG Holdings, are stark. GWG's 2020 implosion—triggered by overvalued policies and a reliance on opaque models—cost investors billions. Like GWG, Abacus faces accusations of related-party transactions (e.g., round-tripping policies through affiliates to justify valuations) and a lack of independent oversight.

The legal risks are compounded by Abacus' $356 million debt load, including $117 million due within nine months, and negative operating cash flow of $61.6 million in Q1 2025. A failure to meet these obligations could accelerate regulatory scrutiny and litigation.

Financial Implications: A Fragile Foundation

The report's most damning revelation is the 31% Actual-to-Expected (A/E) ratio of Lapetus' life expectancy estimates. This means policies valued using Lapetus' models are underperforming by nearly 70%, a red flag for investors. Competitors like Coventry have already rejected Lapetus data, signaling a loss of trust in Abacus' portfolio.

Abacus' response—that third-party validator Lewis & Ellis corroborates its valuations—rings hollow. Morpheus notes Lewis & Ellis' prior ties to Waterford Life Settlements, a fund that faced lawsuits over flawed Lapetus-based valuations. The firm's reliance on inputs provided by Abacus itself undermines its independence.

Meanwhile, Abacus' 20-year profitability claims are undermined by SEC filings showing it only began holding policies on its balance sheet in 2021. Its "adjusted EBITDA" metrics, often cited as proof of health, are inflated by non-cash gains—a warning sign for investors focused on cash flow.

Investment Strategy: Exit or Engage?

For shareholders, the path forward is fraught with uncertainty. Here's how to navigate:

1. Class Action Participation: Investors who held ABL shares during the alleged misstatements (e.g., from 2022 onward) should engage with law firms like Schall to recover losses. Class actions, if successful, could offset some of the stock's value erosion.

2. Strategic Exit: Given the liquidity risks, negative cash flow, and mounting legal pressure, a short position in ABL—or outright divestment—may be prudent. The stock's post-report volatility underscores its vulnerability to further revelations.

3. Due Diligence in High-Risk Sectors: Abacus' case highlights the dangers of investing in complex, opaque industries like life settlements. Investors should scrutinize SPAC-backed firms and alternative asset managers for similar red flags: reliance on non-cash gains, aggressive accounting, and ties to related-party entities.

Conclusion: A Cautionary Tale

Abacus Global Management's saga underscores the enduring risks of financial engineering in asset management. While the company insists its valuations are sound, the evidence of manipulated models, opaque disclosures, and historical parallels to past frauds paints a bleak picture. For investors, the lesson is clear: In sectors where valuations depend on black-box models, transparency and independent oversight are non-negotiable. Until Abacus can prove otherwise, caution—and a close eye on the courts—remains the best defense.