Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | insurance scam by stockbrokers

Jun/11

6

Broker-Dealers Often Keep Insurance Licenses After Being Fired

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In an article from InvestmentNews.com, May 29, 2011, Bruce Kelly writes that Neal Smalbach was fired by a broker-dealer in 2008 for selling securities while he was unregistered, an infraction that got him suspended by the Financial Industry Regulatory Authority Inc. (FINRA) for six months, according to the organization’s BrokerCheck system. It was the second time that a securities firm had let him go. Though he no longer had a securities license, Mr. Smalbach still had a license to sell insurance, and made good use of it — at least for himself, authorities said.

Kelly writes that on April 29, Mr. Smalbach was arrested in Florida by the Pinellas County sheriff and charged with one count of insurance fraud and one count of organized fraud. Each count carries a maximum of five years in prison, along with a potential $5,000 fine. The charges of insurance fraud against Mr. Smalbach, who also has 37 pending customer disputes from his time as a broker, according to BrokerCheck, highlight a persistent problem in the investment advice business:

Registered representatives who permanently or temporarily lose their license to sell stocks, bonds and mutual funds often retain a license to sell insurance.

Although state agencies that regulate insurance agents and securities brokers try to work together to keep an eye on brokers who get fired from either side of the industry, regulators are sometimes limited in their authority because of a lack of information sharing about reps and agents, observers said.

A common criticism among registered reps is that insurance agents who lose a license to sell securities products often sell equity-indexed annuities, an insurance product that is nonetheless marketed as an investment that can compete with a mutual fund or variable annuity.

“It’s been an issue, and still is, among states,” said Joseph Borg, director of the Alabama Securities Commission. “If you’ve been kicked out of one end of the financial markets, you probably don’t need to be in another.”

According to the InvestmentNews.com article, Mr. Smalbach, 48, was selling mortgage insurance policies that promise to pay the balance of a policyholder’s mortgage in the event that he or she dies, according to Jeremy Powers, an assistant state attorney in Florida’s Fifth Judicial Circuit. But instead of mortgage insurance, Mr. Smalbach’s clients were, in fact, sold whole-life policies that were worth no more than $20,000.

“Somebody who’s had the level of problems that [Mr.] Smalbach appears to have had would create a risk for consumers,” Mr. Powers said. “The activities alleged in this case are pretty serious and had the potential to create multiple hundreds of thousands of dollars in victim losses.”

 Smalbach, whose sales practices were profiled last month by the St. Petersburg (Fla.) Times, serve as a backdrop to efforts by lawmakers in Washington and regulators across the country to create a single fiduciary standard for investment advisers, registered reps and insurance agents. This year, a law went into effect in Florida that gives the state’s Department of Financial Services the power to revoke an insurance agent’s license immediately if the agent has his or her securities license revoked.

“Fraud is fraud,” said Nina Ashley, a department spokeswoman.

Kelly reminds us that when confronted with a broker whose securities license had been pulled — but who maintained an insurance license — regulators’ hands are, at times, tied. To take actions against a broker’s insurance license, Ms. Ashley said a specific insurance violation has to be found. “That didn’t always exist,” she said.

Florida already has used the new law to revoke the insurance license of a broker who misrepresented information when selling securities to a senior citizen, Ms. Ashley said. In February, the Florida Office of Financial Regulation permanently barred Jeffrey Donner on charges that he failed to disclose to clients that their accounts would automatically be billed advisory fees of 30% annualized, according to a statement from the agency. Approximately $40,000 in management fees were deducted from clients’ accounts. While Mr. Donner neither admitted nor denied the findings, Florida regulators revoked his insurance license this month according to the InvestmentNews.com article.

THEY ARE FINDING LOOPHOLES

We’ve learned that Mr. Smalbach, however, still has a license to sell insurance products such as life and health policies, and variable annuities, according to the Florida Department of Financial Services’ website.

The broker in question exploited another loophole in the law when he sold stock in a firm called Transfer Technology International Corp., whose shares are currently listed at less than a penny a share. At least a dozen elderly investors, some in their 80s and 90s, bought nearly $1 million of the stock from Mr. Smalbach, according to the St. Petersburg Times. Although he didn’t have a securities license, Mr. Smalbach was an employee of Transfer Technology and could sell shares in the company to accredited investors legally, the newspaper reported.

THEY ARE SMOOTH OPERATORS

Bruce Kelly writes that one longtime client of Mr. Smalbach who invested in the Wesley Chapel, Fla.-based company was Bob Fox, 78, of Sebring, Fla. A client of Mr. Smalbach’s for over a decade, Mr. Fox said he has lost $100,000 in his Transfer Technology investment.

“He was a really smooth talker,” Mr. Fox said, adding that Mr. Smalbach often hurried him through paperwork when buying an investment.

Mr. Smalbach’s former accountant, Robert Ferreira, corroborated Mr. Fox’s statement said the ex-broker often rushed clients through the process of buying investment products, including variable annuities.

“His method was to say, “Sign here, fill in this and that — I’m in a hurry and will fill in the rest at the office,’” Mr. Ferreira said.

If you or a family member have purchased policies through Neal Smalbach or other brokers and experienced a similar situation, contact an insurance fraud attorney for a free consultation on how to potentially recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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May/11

20

Susan Mae Karn Fined and Suspended by FINRA

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Susan Mae Karn (CRD #5218398, Registered Representative, Wimbledon, North Dakota)

submitted a Letter of Acceptance, Waiver and Consent in which she was fined $5,000 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Karn’s reassociation with a FINRA member firm following her suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Karn consented to the described sanctions and to the entry of findings that she allowed a customer to sign relatives’ names on life insurance applications, and before Karn submitted them for processing, she signed the insurance applications and certified that she had witnessed each of the proposed signatures on the insurance applications. The findings stated that Karn falsely certified on the Representative’s Information Supplement document for each insurance application that she had personally seen each proposed insured at the time the application was completed. The findings also stated that one of Karn’s clients completed an application to purchase a municipal bond fund by signing her name on an electronic signature pad, and later that same day, Karn signed the client’s name on the electronic signature pad and thereby affixed the client’s signature on an application without the client’s authorization, consent or knowledge.

The FINRA findings also included that the application Karn’s member firm processed and sent to the client reflected the signature Karn had affixed rather than the client’s authentic signature. FINRA found that when the firm questioned Karn about the authenticity of the client’s signature, Karn initially stated it was the client’s original signature, but when questioned further, admitted she had signed the client’s name and in doing so, Karn misled her firm during its internal investigation into a customer complaint.

The suspension is in effect from March 7, 2011, through September 6, 2011. (FINRA Case #2010022067901)

This information was obtained on FINRA’s website.

If you or a family member have become  victims of the alleged fraudulent schemes of Susan Mae Karn, or have experienced a similar situation, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

6

Dustin Kent Jefferies Sanctioned by FINRA

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Dustin Kent Jefferies (CRD #4376154, Registered Principal, Columbus, Ohio)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000, barred from association with any FINRA member in any principal capacity, and suspended from association with any FINRA member in any capacity for one year. The fine must be paid either immediately upon Jefferies’ reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Jefferies consented to the described sanctions and to the entry of findings that he signed or traced customers’ signatures on applications to purchase life insurance or critical care insurance through an electronic application system available at his member firm, without the customers’ knowledge or consent and contrary to firm policy. The findings stated that Jefferies submitted life insurance applications for fictitious customers and, along with creating fictitious customer names and addresses, he created fictitious social security numbers, driver’s license numbers and other information about the purported customers.The findings also stated that Jefferies submitted these applications for fictitious customers in order to give the appearance that he was meeting his required production for insurance policies sold. The findings also included that when Jefferies submitted each of the fictitious applications, he listed fictitious credit card numbers made up of all zeros for the initial premium payment, knowing that the credit card would be rejected with no payment being collected or the customers billed, while at the same time, his firm would give him immediate credit for submitting a new insurance policy.

FINRA found that when questioned by his manager about the applications, Jefferies initially denied having any knowledge of the practice and when later pressured by his manager, he then offered that newer agents may have been engaged in the activity. FINRA also found that it was only after his manager noted that almost all of the applications with zeros for credit card numbers were submitted from his office that Jefferies admitted to his misconduct, stating he did so because the applications would be credited to his production numbers more promptly that month. In addition, FINRA determined that Jefferies also admitted that he had submitted applications using fictitious names and other information.

The suspension is in effect from February 7, 2011, through February 6, 2012.

 

 

(FINRA Case #2009018919701)

This information was obtained on FINRA’s Website.

 

If you feel you have been an alleged victim of  Dustin Kent Jefferies  please call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

 

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Mar/11

22

SII Investments and Santa Barbara’s Villa Rose Subordinate Notes

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SII Investments, Inc. operates as a broker/dealer. It offers its services through representatives. The company was formerly known as Secura Investments, Inc. and changed its name to SII Investments, Inc. in June, 1997. SII Investments, Inc. began in 1968 when Secura Insurance Company added a securities channel to its existing business. Secura Investments, Inc., gave property and casualty insurance agents the flexibility to sell securities to their clients.The company is headquartered in Appleton, Wisconsin. SII Investments, Inc. operates as a subsidiary Jackson National Life Insurance Company.

 In 1990 Secura Investments, Inc. was repositioned as an independent broker/dealer. In June of 1997, two of Secura’s brokers and one employee of the broker/dealer purchased Secura Investments, Inc. from Secura Insurance Company and changed the name to SII Investments, Inc. One year later, Jackson National Life Insurance Company acquired SII Investments. The network resources available from this new parent company enabled SII to bring new technology and expanded offerings to representatives and clients.

Additional Information:

SII Investments, Inc. Ordered to Pay Customer $105,000
A FINRA arbitration panel ordered SII Investments to pay an investor $105,000 to compensate him for damages that he suffered as a result of SII Investment’s alledged misconduct. The investor accused SII Investments of negligence, failure to supervise, and violation of Florida’s investor protection statute in relation to recommendations and sales of American Skandia variable annuities.

It has come to our attention that there have been some alleged bad investments made through subordinate notes, in a retirement community called ”Santa Barbara Villa Rose, LLC”  which were purchased through SII Investments.  We are currently investigating those claims.

If you feel you have been an alleged victim of a fraudulent investment by SII Investments, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority

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Mar/11

7

Life Settlements Should be Defined as ‘Securities’

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In an article from InvestmentNews, Darla Mercado writes that an SEC task force recommended that life settlements be defined as ‘securities,’ thus making such transactions subject to federal securities laws.

The article states that bringing life settlements under the definition of security would require market intermediaries, including settlement brokers and providers, to register with the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc., according to a report by the task force.

This task force, which has been studying the issue since September, found that while there are two regulatory frameworks addressing life settlements — one from the National Association of Insurance Commissioners and the other from the National Conference of Insurance Legislators — there are numerous variations in how the states actually adopt those rules.

Forty-eight states treat life settlements as securities under state laws, but some states exclude the original sale from the insured person or the sale from the policy owner to the provider.

The Financial Industry Regulatory Authority or “Finra,” currently oversees life settlements involving variable life insurance, but federal courts have reached different conclusions as to whether fractional interests in life settlements are indeed securities, according to the SEC report.

The article goes on to say that the task force recommended that SEC staff members ensure that settlement brokers and providers are sticking to legal standards of conduct, and that the staff watches for the development of a life settlement securitization market. Thus far, no securitizations have been registered with the SEC and offered to the public.

The task force also called upon Congress and state legislators to weigh applying stronger regulation to life expectancy underwriters and asked the SEC to consider issuing an investor bulletin on investments in life settlements. Another report released by the Government Accountability Office also criticized the patchwork of life settlement regulation in the states. Disclosure requirements can vary across jurisdictions, and policy owners could sell their policy without knowing whether they received a fair price or how much their brokers made, the GAO said.

Inconsistent laws have also hampered industry participants, as some brokers and providers have had to deal with the cost of complying with different rules in multiple states, the GAO said. The organization called for consistent legal protection for similar products and services, including disclosures, sales practice standards and suitability requirements.

Call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority

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Feb/11

9

Michael R. Brents Sanctioned by FINRA

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Michael R. Brents (CRD # 4437074, Registered Representative, Church Hill, Tennessee) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Brents has agreed to continue to cooperate with FINRA in an on-going investigation relating to this matter. Without admitting or denying the findings, Brents consented to the described sanction and to the entry of findings that he misappropriated funds when one of his customers wrote a $4,308 check payable to the insurance company affiliate of his member firm for insurance policies and gave the check to Brents as agent for the insurance company. The findings stated that Brents gave an insurance binder/receipt to the customer for the policies, called the insurance company and requested a quote for the largest policy, a business vehicle policy. The findings also stated that Brents entered the other policies onto the company’s system, did not enter the payment for the business vehicle policy into the automated system and did not deposit the premiums into the insurance company bank account. The findings also included that Brents deposited the check into his own business account, paid premiums to the insurance company on two of the customer’s insurance policies and used the remainder to pay his business expenses.
FINRA found that a business vehicle policy was never issued because of a problem: there had been a year-and-two-month lapse in the customer’s prior insurance policy. FINRA also found that the customer’s check was made out to the insurance company and Brents issued a receipt to the customer, when he should have entered the whole premium onto the automated system, deposited the premium payment into the insurance company bank account and, when the policy did not issue, the insurance company would have reimbursed the customer. In addition, FINRA determined that the insurance company refunded the customer the unused portion of the premium.

This information was obtained from FINRA’s website.

If you feel you have been a victim of these alleged fraudulent schemes of  Michael R. Brents, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

9

FINRA Sanctions Darryl Wayne Golter

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Darryl Wayne Golter (CRD # 4883979, Registered Representative, Allen, Texas) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Golter consented to the described sanction and to the entry of findings that he failed to forward insurance premium payments of $102,635 made by customers to insurance companies as he was required to do, but instead deposited the funds into his personal account and used the money for his personal activities without the customers’ or the insurance companies’ permission or authority. The findings stated that, as a result, when a hurricane struck Texas, Golter’s customers filed insurance claims and discovered they were not entitled to coverage; however, the insurance companies provided assistance with property losses and paid out approximately $713,000 in damage claims and refunded premiums. The findings also stated that Golter failed to appear for a FINRA on-the-record interview.

This information was found on the FINRA website’s Disciplinary Actions.

If you have been a victim of the alleged fraudulent schemes of Darryl Wayne Golter, or a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Jan/11

17

Stranger Originated Life Insurance (STOLI)

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Insurance Fraud Alert-

Stranger Originated Life Insurance or STOLI.

Brokers and financial advisors promising big profits on resale of universal life policies.

 Many stockbrokers and financial advisors are having their clients purchase large universal life insurance policies with the promise of a big profit on resale after the two year contestability period passes. There is a promise that the profit from the sale would not only cover the premiums but would put a profit in the insured’s pocket with enough money to purchase another policy and do it all over again. Unfortunately, these brokers are over promising and grossly over representing the legality and liquidity of the resale of the insurance policy especially when it was purchased for the sole purpose of reselling. 

Another common insurance scam facilitated by ignorant or greedy stockbrokers or financial advisors is the Stranger Originated Life Insurance or (“STOLI”) life insurance transaction. STOLI’S are heavily regulated transactions where a lot of illegality can take place if not executed correctly. Many states have made laws or are making laws prohibiting STOLI transactions. STOLI policies are life insurance policies where an insurance investor has their client (usually an elderly person) put their name as the beneficiary on the life insurance policy even though the insurance investor has no insurable interest in their client. This means that the insurance investor is not a relative and is only making the STOLI transaction in order to make money off of the insured person after they die.

STOLI transactions are marketed towards the elderly, especially the elderly who may not live much longer. These insurance investments are generally held for the two year contestability period then resold on the market. Many stockbrokers and financial advisors have been getting involved in the sale of life insurance due to the excessive commissions generated off of universal life insurance policies. Investors who probably don’t need life insurance are being pressured into purchasing these policies and listing the insurance investors as the beneficiaries. The elderly may be “wined and dined” by the insurance investor and told that they can get a cash bonus by making the STOLI transaction. Unfortunately, seniors are often times unaware that they have to pay taxes on the cash bonus and could be charged with theft by agreeing to the transaction. Also, STOLI transactions may make it harder for seniors from getting other life insurance in the future.

In addition, STOLI policies can be bought and sold to more than one person so many insurance investors are, in a sense, wagering on someone’s death.

If you purchased a STOLI or a viatical investment or your broker convinced you to purchase a universal life insurance policy for the purpose of reselling it you may be able to bring a legal claim for recovery of your money. For more information call Soreide Law Group at 1- (888) 760-6552 or visit www.stockmarketlawsuit.com.

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