Articles Posted in Variable Annuities

Financial Firm and Its CEO Settle Life Settlement Fraud Charges
The US Securities and Exchange Commission announced that Verto Capital Management and its CEO William Schantz III have settled civil charges accusing them of running a Ponzi-like scam involving life settlements. As part of the settlement, Verto Capital and Schantz will pay over $4M.

According to the regulator’s complaint, the two of them raised about $12.5M through promissory note sales that were supposed to pay for the firm’s purchase and sale of life settlements. The notes were sold mostly through insurance brokers in Texas.

Investors who were religious were the main target of the alleged fraud.They were allegedly told that that the securities were short-term investments that were at low risk of defaulting.

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The office of Massachusetts Secretary of the Commonwealth William Galvin has fined LPL Financial (LPLA) $1M because the firm’s financial advisers allegedly made misrepresentations to consumers. According to the state regulator, the brokerage firm, which is based in Boston, failed to properly supervise its advisers located at Digital Federal Credit Union (DCU) branches.

LPL financial advisers are allowed to work out of the DCU in return for part of the concessions. However, noted Galvin’s office, the problem was that LPL’s advisers conducted their business as DCU Financial, a reference that could have cause customers to think that they worked for the credit union.

The Massachusetts regulator said that an undercover sting operation was put into place, during which time one LPL adviser allegedly claimed to work for DCU and said that he was not paid commissions for offering investment advice, which was a false statement. Also, DCU paid these advisers bonuses in a sales contest that LPL never authorized.

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The Financial Industry Regulatory Authority has put out a disciplinary complaint against Walter Marino. The former broker worked for Legend Equities Corp. in Palm Beach Gardens, Florida at the time he allegedly facilitated variable annuities sales that were unsuitable for two of his older clients. According to the regulator, Marino recommended exchanges of non-qualified VAs to the customers without having reasonable grounds to guide them toward these investments.

FINRA said that Marino earned about $60K in commissions. Meantime, the customers lost over $82K because of surrender charges they were forced to pay and they did not benefit financially. Not only that but because Marino didn’t apply the tax-free exchange provision of the Internal Revenue Code, the customers ended up with substantial tax liabilities.

Now, the regulator wants Marino to disgorge his ill-gotten gains and pay the customers full restitution for the variable annuity fraud.

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Investor Awarded Over $1M After Allegedly Misleading Sales Pitch by Wilbank Securities Broker

A Financial Industry Regulatory Authority panel has awarded investor Grace S. Huitt over $1 million in her broker fraud claim against Wilbanks Securities. According to Huitt, one of the firm’s brokers presented her with a sales pitch about the ING Landmark Variable Annuity that not only was misleading but also promised too much and then under-delivered. She alleged breach of contract, fraud, breach of fiduciary duty, and negligent supervision.

Huitt claims that when she bought the variable annuity in 2008, she was told that it came with a guaranteed 7% compound yearly return. Other investors who also had made investment puchases through Wilbanks Securities reportedly claimed similar problems with what they were promised.

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FINRA Bars Registered Rep For $15M In Unauthorized Trades
The Financial Industry Regulatory Authority has barred Craig David Dima, a former registered representative with KC Ward Financial, for making about $15M in unsuitable and unauthorized trades in the account of a 73-year-old retiree. According to the self-regulatory organization, there were 11 times when Dima sold nearly all of the customer’s stock in Colgate-Palmolive that she’d accrued from working with the company for nearly thirty years and he did that without permission.

After the elderly client told Dima not to sell the stock, he proceeded to sell them anyways. When the customer confronted Dima, he purportedly misrepresented that a computer or technical mistake had caused the sale. Meantime, the client was “deprived” of the “substantial dividends” from the Colgate shares she used to own. Dima charged the customer over $375K in fees, mark-downs, and mark-ups.

By settling, Dima is not denying or admitting to FINRA’s charges.

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Secretary of the Commonwealth of Massachusetts William Galvin has filed charges against LPL Financial (LPLA) for its alleged failure to supervise one of its brokers. Roger Zullo is accused of bilking clients for years by selling variable annuities to retirees even though the investments were not suitable for them.

In his complaint, Galvin contends that Zullo lied to supervisors and generated false client financial suitability profiles so he could sell scores of high-commission, illiquid VAs to make money for himself and the firm. Because of these investments, said the state regulator, many older clients were unable to access their funds for years.

The complaint notes that for three years, Zullo and LPL received over $1.8M in VA commissions from sales. The Polarius Platinum III (B Shares) VA appeared to be the source of a large chunk of the commissions. Galvin said that of the more than $1.8M in VA annuity commissions that Zullo was able to generate, over $1.7M of it came from this particular variable annuity, which paid a 7% commission. 90% of this went to Zullo, while his firm received the rest. Also, clients whom Zullo could convince to move to the Polaris Platinum variable annuity usually had to pay surrender charges.

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The Financial Industry Regulatory Authority is ordering VALIC Financial Advisors Inc. to pay a $1.75M fine for purported conflicts of interest that impacted the way that the firm compensated brokers for selling annuities. According to the self-regulatory organization, from 10/2011 through 10/2014, the Houston-Based financial firm established a conflict of interest when it said registered representatives would receive financial incentives for recommending that clients transfer their money from VALIC variable annuities into a Valic fixed index annuity or onto its fee-based platform. FINRA said that the firm created even more conflict when it told representatives they would not get compensation from moving customer money to a non-Valic product from a Valic variable annuity.

FINRA said that because of these conflicts, a significant amount of assets were moved to the firm’s advisory platform and sales of  VALIC ’s proprietary fixed index annuity increased by over 610% after it was included in the firm’s compensation policy.

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Secretary of State William Galvin is accusing Texas-based brokerage firm Investment Professionals of selling investment products to elderly customers even though the investments were not suitable for them. The San Antonio broker-dealer allegedly ran high-pressure sales contests at several partner community banks in the New England state between 2013 and 2016. Galvin said that the purported “sales gimmicks” were  “unacceptable” and that his office would not tolerate them.

The Texas-based brokerage firm allegedly prioritized sales volume over whether or not the investments they were selling were suitable for the older customers. The customers had accounts at the local Massachusetts banks. For example, one bank customer, who was suffering from terminal cancer, saw so many of her assets placed in a variable annuity that she could not access her savings.

Galvin charged that these sales contests were not in alignment with Investment Professionals’ own procedures and policies and his office accused the firm of inadequate supervision, in particular of the Texas broker-dealer’s representatives who worked out of the Massachusetts banks. He noted that sales contests are “contrary to investor protections.”

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FINRA has issued a complaint against Stanley Clayton Niekras accusing the broker of elder financial abuse. According to the regulator, Niekras allegedly cheated a couple, who are in their nineties and in failing mental and physical health, out of over $70K in financial panning services fees.

Even though Niekras didn’t have an investment advisory or financial planning agreement with the elderly couple, he allegedly billed them for hundreds of hours of time that he purportedly spent working on their “financial future” –work that he claimed to have done over four years. The purported elder fraud would have taken place while he worked for MML Investors Services. FINRA said that Niekras charged the couple  $250/hr in retroactive compensation. The couple received their bill for these supposed services in 2013.

FINRA contends that Niekras knew that he had no right to the “financial planning fees or the “estate planning” fees he was charging the couple. The self-regulatory organization said that the broker, who had been contending with tax liens, had told MML Investors Services that he could cover the liens because of commissions he was expecting. Niekras purportedly thought that he could sell variable annuities to the children of the older couple, who had gifted them with about $500K in securities and cash each.
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