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NASDAQ:ABL06/04/2025

Morpheus Research Short Report on ABL

By Morpheus ResearchView original source ↗
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Abacus Global Management: Activist Short Report Summary

Summary

Morpheus Research published a comprehensive short report on Abacus Global Management (NASDAQ: ABL), a $740 million alternative asset manager focused on life settlements. The report alleges that Abacus is "manufacturing fake revenue by systematically underestimating when people will die" through an accounting scheme involving its relationship with life expectancy provider Lapetus Solutions. Following Abacus' initial response calling the allegations "false," Morpheus Research published a follow-up article demonstrating that Abacus' response failed to refute the core allegations and instead contradicted the company's own SEC filings, while revealing additional evidence of undisclosed related party dealings.

Who is Abacus Global Management

Abacus Global Management (NASDAQ: ABL) is a $740 million market cap alternative asset manager primarily focused on buying and selling life insurance policies ("life settlements"). The company was founded in 2004 by Todd "Sean" McNealy, Matthew Ganovksy and Kevin "Scott" Kirby and went public in July 2023 through a SPAC deal sponsored by Terry Pegula, the owner of the Buffalo Bills and Buffalo Sabres. The company has gained significant visibility through television commercials featuring CEO Jay Jackson that have reached an estimated 25% of Americans on networks like Fox and CNN. Abacus markets itself as being "at the heart of the life settlement industry" and claims to offer superior returns through proprietary technology and AI-driven underwriting processes.

Key Points from Report

"Too Good to Be True" Returns Through Fair Value Manipulation

  • Abacus boasts 30% returns with little to no risk, while average industry returns hover around 12%, according to trade publications and multiple experts interviewed by Morpheus Research
  • Since making an accounting change just before going public, 61% of Abacus' Q1 2025 revenue came from unrealized gains related to fair value markups, increasing from just 13% in 2022

Intimate Relationship with Questionable Life Expectancy Provider

  • Abacus has a $1 million investment in Lapetus Solutions, an AI-powered life expectancy provider, with CEO Jay Jackson previously serving as a director and co-authoring a book with Lapetus' co-founder
  • Coventry analyzed 4,378 LEs from Lapetus and determined that its estimates were, on average, 31 months shorter than the "next shortest" LE providers, resulting in an "alarmingly low" A/E ratio of just 31%

Discount Rate Manipulation to Generate Paper Gains

  • During Q1 2025, Abacus quietly lowered its discount rate from 20% to 18%, generating approximately $28.4 million in unrealized gains
  • Without this discount rate change, Abacus' adjusted EBITDA would have been negative despite CEO Jackson boasting about a "record quarter"

Questionable Carlisle Acquisition and Related Party Transactions

  • Abacus paid 36 times earnings for Carlisle Asset Management, nearly triple the valuation of global asset management peers, for a business with declining profitability
  • Within 29 days of acquiring Carlisle, Abacus sold policies to Carlisle funds and realized a 45% gain, contributing 81% of Abacus' Q4 2024 earnings beat

Contradictory Response to Core Allegations

  • Abacus claimed it does not use life expectancy data to value its portfolio and instead relies on a "mark-to-market" method based on "actual market results," directly contradicting its SEC filings which state valuations are based on "Level 3 inputs" including "life expectancies and cash flow discount rates"
  • Despite claiming Lewis & Ellis provided independent validation of its portfolio, Abacus failed to disclose what life expectancy or discount rate inputs were used, and whether these inputs were provided by Abacus or independently obtained

Questionable Portfolio Turnover Claims vs. Reality

  • Abacus repeatedly claims it targets a balance sheet turn of 2x annually with policies held for 4-6 months on average, but SEC disclosures indicate only 20.2% average turnover over the last four quarters, implying a holding period of over 1.3 years
  • The company sold 226 policies for $141.4 million in Q2 2025 but did not disclose if these were sold to entities that Abacus controls, including Carlisle and other Abacus funds which raised ~$123 million the previous quarter

Evidence of Related Party Schemes and Policy "Washing"

  • New evidence revealed that Carlisle engaged in "round-tripping" policies between related parties: on March 8, 2022, Carlisle sold 6 policies to Daybreak LLC, which sold them to Life Capital Group 10 days later at a 9% markup, before Life Capital sold them back to another Carlisle fund
  • Abacus quietly acquired National Insurance Brokerage (NIB) for $3 million in Q1 2025 after previously telling the SEC it had "no significant contractual, transactional, or affiliate relationship" with the entity controlled by Abacus co-founders

Activ8 Analysis

The Morpheus Research reports raise substantial concerns about Abacus Global Management's accounting practices and business model sustainability. The allegations of systematic underestimation of life expectancies through the company's relationship with Lapetus Solutions echo historical patterns seen in previous life settlements industry failures like GWG Holdings, Life Partners, and Mutual Benefits Corporation. Particularly troubling is Abacus' response to the initial report, which contradicted its own SEC filings regarding valuation methodologies and failed to address core allegations while introducing new inconsistencies about its operational history and portfolio turnover claims.

The follow-up investigation revealing evidence of policy "round-tripping" through related parties, undisclosed relationships with controlled entities like National Insurance Brokerage, and potential sales to affiliated funds raises serious questions about the transparency and legitimacy of Abacus' reported transactions and valuations. Combined with the company's negative $61.6 million operating cash flow in Q1 2025 against $356 million in high-interest debt, these findings suggest that investors should exercise extreme caution. The pattern of contradictory statements, undisclosed related party transactions, and accounting practices that mirror previous industry frauds presents a confluence of risk factors that warrant careful consideration before any investment decisions.