It was reported that on July 22, 2011, the Securities and Exchange Commission (SEC) released a report from its Life Settlements Task Force which recommended that the SEC urge Congress to amend the federal securities laws to include life settlements as securities. The SEC report also recommended that the SEC monitor brokers and providers to assure that legal standards of conduct are being met.

This report raises a key policy question about life settlements, in which a policyholder sells the policy to someone else, who then assumes responsibility for paying the premiums. In exchange, the insured person receives a lump-sum payment that exceeds the policy’s cash surrender value but is less than the expected payout in the event of death.

The SEC proposal to define life settlements as securities is both wise public policy and the only solution that would give all participants the confidence to create a sustainable secondary market for life policies.

This 43-page report and its 40 pages of exhibits are the product of a joint task force that conducted an extensive review of existing law, litigation and enforcement actions. The task force also interviewed all major market participants, making the study the most comprehensive look at this complex issue to date.

Securities Lawyer, Lars Soreide, feels that ‘life settlements’ should be considered ‘securities.’ Lars Soreide says, “It is a gray area when a financial advisor takes off his securities hat and puts on his insurance hat to sell you a life settlement, which can leave many customers confused as to whether they are dealing with  insurance products or securities. Furthermore, by not classifying life settlements as securities it makes it more difficult on investors, who were burned by their advisors, to pursue legal action. By not classifying life settlements as securities, investors may not be able to pursue these claims in the Financial Industry Regulatory Authority (FINRA) forum and have to sue in state or federal court which is a longer, more expensive process, unless all parties agree to arbitrate before FINRA.”

The courts and regulators have found investments in life settlements to be securities. The SEC report, in fact, points to 25 SEC enforcement actions and 13 enforcement actions brought by the Financial Industry Regulatory Authority Inc. that rest on this conclusion, as well as numerous other cases.

If the definition of a security under the securities laws were amended specifically to include life settlements under the NASAA model the definition would preserve a place for state regulation of legitimate life settlements. At the same time, it would close the door to many abusive transactions, including almost all forms of stranger-originated life insurance.

If life settlements were defined as securities, many of the abusive practices that have spawned more than 300 lawsuits and loss of much personal wealth would have been avoided. Few of these litigated cases involved variable policies, which come under the purview of securities regulation and demonstrate the relative effectiveness of Finra regulation and enforcement.

The SEC proposal to define life settlements as securities may be just what is needed to boost investors’ confidence and encourage them to buy, which would make the market more liquid.

Securities regulation would create full, fair and adequate disclosure of all material facts, and the discipline of Finra oversight would afford policyholders consistent protection in all U.S. jurisdictions. This would make it harder for abusers to sidestep the law.

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.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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Darla Mercado of InvestmentNews.com, recently wrote that Finra’s variable annuity (VA) suitability rule should be old news to broker-dealers, but firms that want to avoid an arbitration land mine ought to review their procedures.

Mercado writes this warning came directly from Andrew A. Favret, associate vice president and regional chief counsel at the Financial Industry Regulatory Authority Inc.

Along with Robert H. Watts, a Finra arbitrator and former compliance officer for John Hancock Financial Services Inc., Favret held a boot camp on annuities at the Insured Retirement Institute’s Government, Legal & Regulatory Conference in Washington. Both shared tales of broker-dealers’ missteps on following VA suitability rules and highlighted the red flags that likely would bring a firm under Finra’s suspicion.

“It’s funny how often firms have good procedures [for sales practices] and the reps will say they’ve never seen them,” Mr. Favret said. “Firms need to be able to show they have good procedures and that they’re getting the word out to their reps.”

In some cases, the person responsible for providing supervisory approval at a broker-dealer had left the firm years ago, Mr. Favret said.

“Whenever Finra finds something, they look at who’s the nearest principal,” said Mr. Watts. “What did they do? What should they have done?”

The InvestmentNews.com article goes on to say that some broker-dealers have been caught with outdated supervisory procedures and standards of conduct, and have been unable to give Finra an adequate explanation as to how the procedures were drafted or who exactly is responsible for ensuring that reps follow the rules.

Common pitfalls for firms include failure to have written supervisory procedures, failure to have appropriate policies and steps to assess suitability, and failure to document complete suitability information.

Mr. Favret also highlighted “the three C’s” that help determine whether Finra will pursue a case: concentration and how a firm justifies placing upward of 50% of a client’s net worth into a VA; costs and whether the rep took that into account when either selling or transferring a VA; and complexity — whether the customer knows what he or she is buying.

Finra began an initiative this year where it combed through data from five or six major VA issuers for data on concentration levels and the sales of VA riders, Mr. Favret said. It’s a way for Finra to highlight problem areas throughout the industry without having to rely solely on complaints, writes Mercado.

“We had relied on customer complaints, which isn’t a very efficient way to get at problems in the industry; you’re looking for a needle in the haystack,” Mr. Favret said. Instead, data mining “is a big deal in terms of how we look at this going forward.”

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member feel you have become a victim of stock/securities loss, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

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

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In an article from InvestmentNews.com, Mark Schoeff Jr., writes that broker-dealers have been engaging in sales practices for structured securities products that hurt retail investors, according to a Securities and Exchange Commission (SEC) report released in July.

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WASHINGTON – On FINRA’s website, August, 10, 2011, The Financial Industry Regulatory Authority (FINRA) announced that it has fined Citigroup Global Markets, Inc. $500,000 for failing to supervise Tamara Moon, a former registered sales assistant at the firm’s branch office in Palo Alto, California. Over an 8 year period, Moon misappropriated $749,978 from 22 customers, falsified account records and engaged in unauthorized trades in customer accounts.  

FINRA reported that Moon took advantage of Citigroup’s supervisory lapses at the branch and targeted elderly, ill or otherwise vulnerable customers whom she believed were unable to monitor their accounts. Moon’s victims included elderly widows, a senior with Parkinson’s disease and her own father.  

Brad Bennett, Executive Vice President and Chief of Enforcement said, “Tamara Moon used her knowledge of Citigroup’s lax supervisory practices at the branch to take advantage of some of the firm’s most vulnerable customers, including the elderly. Citigroup had reason to know what she was doing and could have stopped her.”

Also, FINRA found that Citigroup failed to detect or investigate a series of “red flags” that upon further inquiry should have alerted the firm to Moon’s improper use of customer funds. The red flags included exception reports highlighting conflicting information in new account applications and customer account records reflecting suspicious transfers of funds between unrelated accounts. Citigroup also failed to implement reasonable systems and controls regarding the supervisory review of customer accounts, thus enabling Moon to falsify new account applications and other records.

FINRA reported that in one incident, Moon misappropriated nearly $80,000 from an elderly widow’s account. An exception report highlighted two address discrepancies in the customer’s account documents where the street address did not correspond to the city and zip code provided for the address and the telephone prefix did not match the zip code of the address. Moon, who had entered the account information, attempted to explain to Citigroup that the discrepancies arose because the client had moved to Arizona, an explanation that did not seem reasonable. Nonetheless, Citigroup accepted Moon’s explanation without further inquiry, thus enabling Moon to continue her misappropriation of customer funds. Citigroup also failed to detect suspicious activity involving transfers and disbursements in the accounts Moon used to misappropriate customer funds.  

 Additionally, Moon created an account in the name of a deceased customer even after Citigroup had been notified that the customer was deceased. Moon then created a fraudulent account in the name of the deceased customer’s widow. Moon transferred $10,440 from the deceased customer’s fraudulent account to the widow’s fraudulent account. A few weeks later, Moon had checks issued for $5,000 and $2,500 from the fraudulent account set up in the widow’s name to Moon’s personal bank account.

The FINRA report add that in a separate incident, Moon transferred $150,000 from an account held by a customer to a fraudulent account Moon created in her father’s name. Two days later, Moon transferred $90,000 from the fraudulent account in her father’s name to an account Moon controlled. Citigroup’s review of customer account records was deficient and prevented the firm from detecting red flags concerning Moon’s misconduct.

 In concluding these settlements, the firm neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

 This information was obtained on FINRA’s website.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have invested Citigroup Global Markets, Inc., or Tamara Moon, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

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

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Securities attorney, Lars Soreide, of Soreide Law Group, PLLC, is currently investigating the Dendreon Corp. (NASDAQ: DNDN) for possible violations of federal securities laws after the company’s withdrawal of its sales forecasts for its prostate cancer therapy Provenge. Dendreon projected that it would earn between $350 – $400 million on sales of Provenge.

With the announcement of Dendreon withdrawing it’s earnings guidance, the stock fell from a closing price on August 3, 2011 of $33.65 to an opening price on August 4, 2011 of $12.73. The shares of DNDN fell more than 60 percent after the company withdrew its 2011 revenue estimates allegedly costing the company $3.2 billion in market value.  Today, it is at $11.05.

If you or a family member  invested in DNDN stock and suffered losses, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

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

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In an August 4, 2011, article by Bruce Kelly for InvestmentNews.com he writes that after avoiding the pitfalls of disastrous Regulation D deals during the past decade, Commonwealth Financial Network and LPL Financial, LLC, are contending with potential fallout from a real estate private placement that faces pressure from its creditors.

Kelley writes that financial advisers from both Commonwealth and LPL sold the fund in question, the Laeroc 2005-2006 Income Fund LP, which wants to raise another $12 million to $15 million to pay off — at a steep discount — $49 million of debt. Laeroc Partners Inc., a real estate investor that focuses on Los Angeles and other parts of Southern California, in June issued a “cash call” notice to investors who bought the Laeroc 2005-2006 Income Fund.

According to the article, the fund’s lenders have said that they will foreclose by the end of the year on a shopping center in Sacramento, Calif., if the fresh cash isn’t paid, according to the notice. The Laeroc fund has paid more than $180 million to buy eight properties and owes $105 million in mortgage debt.

The Reg D Difficulties

Dozens of small to midsize independent broker-dealers became entangled in the fallout from Reg D private placements after the Securities and Exchange Commission (SEC)charged two sponsors, Medical Capital Holdings Inc. and Provident Royalties LLC, with fraud in 2009.

Kelly writes that for the most part, leading independent firms such as Commonwealth and LPL sidestepped the toxic products, of which brokers sold $2.7 billion. About half of investors’ principal was wiped out in those two deals, and the steep legal costs associated with client arbitration claims and settlements have pushed dozens of independent broker-dealers to close or be sold.

Industry executives noted that real estate deals, including nontraded real estate investment trusts, which raised money and bought properties from 2006 to 2009, are struggling.

Joseph Kuo, a spokesman for LPL, said that the firm’s reps and clients “have successfully avoided the most difficult product-related issues associated with the financial crisis.”

“The challenges currently faced by the Laeroc fund are driven by market forces resulting from the 2008 credit crisis and the stress to the commercial-real-estate markets from the ensuing recession,” he said, adding that the firm will keep a close watch as Laeroc works to address the issue.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have invested in private placements with Commonwealth Financial Network, LPL Financial, LLC, or Laeroc Income Fund, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

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

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Back in April of 2007, the U.S. Securities and Exchange Commission sued a hedge fund, Lydia Capital LLC (Lydia), in the U.S. District Court for Massachusetts alleging fraud against investors in life insurance policies purchased by Lydia. SEC v. Lydia Capital LLC, No. 1:07-CV-10712, (D. Mass. Apr. 12, 2007). granting in part a motion by the SEC, the court entered a temporary restraining order freezing Lydia’s assets. According to the SEC complaint, Lydia was selling hedge fund shares to investors without revealing to those investors (all apparently Taiwanese) that the principal underlying assets of the hedge fund—namely, life insurance policies—may be either worthless or virtually worthless.

The life insurance policies may be worthless, according to the SEC complaint, because the application forms submitted to the insurer asked the purchasers if they intended to sell their policies. On approximately half of the policies purchased by Lydia, the complaint alleges, the individuals purchasing the policies answered that question “no” even though they intended to sell their policies, and did sell their policies, to Lydia.

A false representation on a life insurance application allows the insurer to rescind the policy. Because the purchasers of the insurance policies knowingly answered the question falsely, and because the insurers therefore have the right to rescind those policies, according to the SEC, the policies are virtually worthless. Since Lydia did not notify their investors that the policies are likely worthless, they were engaging in a fraudulent investment scheme, the agency contends.

The buying and selling life insurance policies on a large scale began with the AIDS epidemic, when young AIDS patients, often without families, who had contracted the disease sought to tap into the value of their life insurance policies to pay medical bills and other expenses. A number of states enacted viatical insurance laws that allowed them to do so and regulated the process. The selling of life insurance policies to third parties for market value, invariably substantially higher than the “cash surrender value” that insurance companies include in some life insurance contracts, suddenly developed into a thriving new secondary market for life insurance that has grown by leaps and bounds in the past five years. These transactions are usually called “life settlements” and sometimes distinguished from the more narrow term “viatical settlements,” which refers to sales by persons facing imminent death.

A life insurance policy is “property” and, like other property, can be sold, including to persons who have no insurable interest in the life of person who is insured. (Grigsby v. Russell, 222 U.S. 149, 1911). Such sales, however, can be regulated in order to prevent fraud and to ensure that they do not become mere “wagering contracts.” (See, for example, Clement v. New York Life Ins. Co., 101 Tenn. 22, 46 S.W. 561, 1898).

To protect against the possibility that a life insurance policy is being procured for the sole purpose of selling it to third parties, life insurers have started adding a question to the standard life insurance application form, asking if the purchaser intends to sell the policy. Some carriers will turn down the application if the question is answered “yes.”  Answering the question “no” could raise the possibility that the policy could be rescinded at a later date for material misrepresentation,  if in fact the applicant does intend to sell the policy to investors.

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.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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There are large sums of money involved with life insurance and the industry needs to protect against people setting up fraudulent policies and transactions. There are three  concepts that must be understood as they relate to a senior life settlement. They are; Insurable Interest,  Rescission, and Contestability,.

Insurable Interest and Life Settlements

“Insurable interest” is deals with the legal legitimacy of a life insurance policy and its beneficiary. The intention of life insurance is to provide a financial payment to the beneficiary after the death of the insured. The beneficiaries are typically the family, descendents, heirs, employers, businesses, business partners and charities of the insured. These are legitimate beneficiaries that qualify for “Good Insurable Interest”.

For a life insurance policy to have legitimate good insurable interest, it is required that at the time of purchase, the intent was to benefit a legitimate beneficiary. If it can be shown that a policy was bought with the sole intention of making a life settlement then this would be considered “bad insurable Interest” or a “lack of insurable interest”. In this situation, the policy was issued on fraudulent grounds and the applicant was acting as an agent on behalf of an investor and NOT for the reasons listed on the application form. This situation has the potential for a recession at any time. This could also lead to a contested death claim at any time well beyond the 2 years of contestability.

Contestability Period and Life Settlements

• The contestability period is the first two years a new life policy is in force. During this two-year period;
  • A death claim may be denied or “contested” due to a fraud on the life insurance application or the suicide of the insured.
  • The life settlement value of a policy is typically higher after the contestability period. 
  • An overwhelming majority of life settlement buyers will not purchase policies during the contestability period.
  • Life insurance companies don’t like life settlements but are particularly averse to life settlement transactions during the contestability period.

  Seniors should be aware that life insurance companies are not proponents of  life settlements. The fact is that life insurance companies profit greatly when a policy lapses without them having to pay a death benefit. When a policy is sold to an investor in a life settlement, it becomes a virtual certainty that the policy premiums will be paid and the death benefit will have to be honored. Also, professional investors pay the absolute minimum premiums until the anticipated death of the insured. These factors lower life insurance company profits.

  Seniors have every right to sell their life insurance policies that have been acquired legitimately and the life settlement market provides them a profitable avenue to do that. However, seniors cannot just buy life insurance with the intention of selling it in a life settlement to make money. To do so may be fraudulent because life insurance applications all ask the intent of the buyer.

   

  Rescission of Life Insurance and Life Settlements

  A rescission is a cancellation of the life insurance contract by the issuing life insurance company. If during the two year contestability period the life insurance company suspects fraud it can rescind the life insurance policy. If the fraud is related to a lack of insurable interest at the time the policy was issued, the recession can take place at any time. Obviously, life settlement investors will only purchase policies that they believe are in good standing and without any fraud in the origination.

  In order to rescind a policy the following conditions need to be met.

  • No death has occurred; i.e, the insured is still alive.
  • The company believes a fraud or misrepresentation was perpetrated on the application.
    • Medical information misstated.
    • Financial information misstated.
    • A misstatement of purpose that indicates bad insurable interest.

   

Arranging a life settlement in advance as part of buying a life insurance policy may lead to fraudulent statements on the life insurance application which in turn may lead to a finding of bad insurable interest which in turn may lead to policy rescission and/or a contested death claim.

Each state is responsible for creating and enforcing insurance laws and regulations. As a result the laws differ state by state and it is important to use experienced life settlement  attorneys to ensure that all laws are being adhered to. Florida has some of the strongest life settlement laws: It is a felony to solicit life insurance for the purposes of creating a life settlement.

• In most states insurable interest must exist only at the time a policy is issued. Afterwards, any owner and beneficiary are just as legitimate as the original beneficiary.
• Bad insurable interest at the time a policy is issued is a potential reason for a CONTESTED DEATH CLAIM or a policy RESCISSION at any time.
• A fraudulent statement on the initial life insurance application related to insurable interest could lead to a policy rescission or contested death claim many years AFTER the contestability period has gone by.

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There have been claims filed with the Financial Industry Regulatory Authority (FINRA) against the NNN Capital Opportunity Fund, LLC, in connection with the sale of defective financial products. Subject to review it appears to have retained its value well
during the financial crisis, then imploded thereafter.

Many of these products are manufactured for retail sale to the investment public with names like “secure fund,” “principal protected notes,” or “interest bearing preferred,” but they are actually some of the riskiest investments available.  Allegedly, some these securities were sold as marketable and insured investments, when the securities could only be redeemed at the discretion of the company.

The pattern also appears that many of these newer investment fraud cases are sold through securities broker/dealers who have adopted the “franchise” business, and operated from a series of small one or two person “independent,” and otherwise unsupervised offices, across the county. Some of NNN Captial Opportunity Fund, LLC, clients were with Royal Alliance and American Portfolios.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have invested in NNN Capital Opportunity Fund, LLC, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

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

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Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, would like all investors to take note of the warnings coming from both FINRA, the Financial Industry Regulatory Authority, and the SEC, the Securities and Exchange Commission this past week.

FINRA has warned all investors to watch for structured products that are callable, promise principal protection or have returns based on changes in the yield curve. Although such investments could produce attractive returns, they also might “earn no return for the entire term of the note,” the alert said.

FINRA warned investors about chasing yield with structured products, junk bonds and floating-rate bank-loan funds. The alert was initiated by “significant recent inflows” into high-yielding products, FINRA said.

Structured products “can have significant drawbacks such as credit risk, market risk, lack of liquidity and high hidden costs,” the alert said. Finra also warned that the market for floating-rate loans is “largely unregulated, relatively illiquid and difficult to value.” The underlying loans, however, are “are subject to significant credit, valuation and liquidity risk.”

The SEC released a report last Wednesday also, saying that broker-dealers have been engaging in sales practices for structured securities products that hurt retail investors. Adding that firms may have steered clients into the complex products even though they were not suitable for their portfolios.

The SEC says the riskiest structured products, according to their report, is a reverse convertible note, which is a security with an embedded put option.

Attorney Lars Soreide adds, “When both FINRA and the SEC are sending out warnings, all investors need to be careful when your broker/dealer wants you to consider purchasing complex investment products.  Make sure you know the product and what your risks are before purchasing them.”

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have lost your investments through risky investments, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

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