TAG | florida life insurance fraud
The Financial Industry Regulatory Authority, also known as FINRA, has been enforcing all types of annuity transaction misdeeds nationwide according to recent enforcement reports from the agency, writes Elizabeth Festa in a recent article for LifeHealthPro.com.
FINRA recently censured a firm and fined it $40,000 to settle allegations that the firm failed to maintain required documentation about variable annuity transactions and it’s customers. Sampled transactions of the firm, Allied Beacon Partners, Inc., Richmond, Va., lacked certain customer information or documentation needed in order to make a reasonable suitability determination.
“A large portion of variable annuity transactions sampled revealed the firm’s failure to ensure that a designated principal adequately reviewed and approved the customer’s application prior to its transmission to the issuing insurance company,” FINRA wrote.
FINRA reported that the firm’s Written Supervisory Procedures (WSPs) for variable annuity transactions were deficient. The WSPs identified one individual as having the responsibility to supervise variable transactions, but another individual not identified in the WSPs was actually the primary person responsible for supervising VA transactions, FINRA uncovered.
FINRA’s findings also said that the WSPs did not address how the firm would monitor compliance with SEC Rule 15c2-8, which requires that a prospectus be delivered to customers. The firm was unable to provide any documentation that a prospectus was sent to any of the customers, FINRA alleged.
FINRA also settled a matter involving a registered representative who recommended unsuitable transactions, a mortgage and a variable annuity, to a customer, a 53-year-old widow who worked as an administrative assistant for a public school system. Her annual salary was approximately $55,000, she owned a home unencumbered by a mortgage and valued at approximately $500,000, and she had an investment portfolio valued at approximately $160,000 in retirement accounts and $100,000 in certificates of deposit.
In another recent case, FINRA found that the representative did not have a reasonable basis for recommending that the customer mortgage her primary residence to invest $300,000 in a variable annuity, given that the customer intended to retire in seven years, had limited income, expected an equally limited retirement income and would have an insufficient monthly income to make the mortgage payments.
FINRA concluded that the registered representative’s conduct violated rules of ethical standards and rules concerning recommendations to customers. FINRA fined the representative $5,000 and suspended him in all capacities for 10 business days.
In another FINRA case, a registered representative in Naples, Fla.,was fined $25,000 and suspended from association with any FINRA member in any capacity for three month. He consented to findings that he recommended and executed a variable annuity replacement contract for a member firm customer in a state in which he was not licensed to sell insurance products and included false information in the firm’s electronic books and records.
FINRA’s findings stated that he logged into his member firm’s Web-based system utilized by firm sales staff to complete transaction paperwork for annuity contract purchases reporting that the customer was a New York state resident. When the system rejected the replacement transaction because the deferred VA product was not offered to New York residents and because he did not hold the requisite state insurance license, he listed the customer’s state of residence as Florida.
The National Association of Insurance Commissioners (NAIC) revised its annuity sales model regulation in March, 2010, to provide annuity protections for consumers of any age, (such as the 53 year-old widow), requiring insurer reviews of every annuity transaction, and clarifying that insurers are responsible for compliance with annuity protection provisions — even when insurers contract with third parties.
A Florida regulatory-supported bill died in the Florida Banking & Insurance Committee back in March, 2012. Florida, which has one of the highest senior population rates in the country, would have become the 20th state to enact the revised model law on annuities.
If you or a family member have become alleged victims of annuity or insurance fraud, contact an attorney at Soreide Law Group for a free consultation on how to recover your investment losses. To speak with an attorney, call 888-760-6552, or visit http://www.securitieslawyer.com.
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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In an InvestmentNews.com article from March 6, 2012, Darla Mercado writes that the Lincoln National Life Insurance Co. will pay $5 million in death benefits for a life insurance policy the insurer had contended was fraudulent.
The jury in the U.S. District Court for the Southern District of Florida on Friday found in favor of plaintiff Steven A. Sciarretta, a trustee of the Barton Cotton Irrevocable Trust and owner of a $5 million life insurance policy on the life of the late Mr. Cotton, in a case against Lincoln National.
Mercado writes that Mr. Sciarretta took the insurer to court last April because Lincoln would not pay the death benefit proceeds, even though Mr. Cotton had died after the two-year contestability period in which carriers can refute claims had expired. Lincoln countersued and alleged Mr. Cotton’s policy was void from the start because he had indicated falsely on the policy application that he had no intent to sell the coverage on the secondary market or to assign a beneficial interest in the policy to a trust.
Lincoln National, the insurer, claimed the policy was issued at the behest of so-called stoli promoters. Stoli, or stranger-originated life insurance, involves buyers’ purchasing life insurance coverage they don’t need for the express purpose of selling the death benefits to investors.
The InvestmentNews.com article goes on to say that the jury found the trust had indeed made false statements on the life insurance application. But the panel also stated that it believed Mr. Cotton had not intended at the moment of purchase to transfer the policy to another party with no insurable interest in his life. The jury also found that Lincoln itself was not harmed by these misrepresentations, according to the verdict.
Mercado adds that Mr. Sciarretta benefited from Florida’s insurable interest law, which contains an implicit “good faith” requirement, which requires the insurer to prove that the policy was purchased with the sole intent to sell it to a stranger who doesn’t have an insurable interest in the life of the insured person. In this situation, however, Mr. Cotton’s family members testified that he had intended for the insurance to benefit them. Because the policy was issued in good faith, the trust will end up collecting on the full $5 million.
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. Lars K. Soreide will 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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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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