Securities Lawyer Blog | Victim of Fraud?

TAG | life settlement

Nov/11

29

Next Financial Group, Inc., Ordered to Pay $2M to Clients Over Provident Royalties Private Placements

Comments off · Posted by Securities Lawyer in FINRA

In a November 28, 2011 article for InvestmentNews.com, Bruce Kelly writes that Next Financial Group, Inc. has agreed to pay $2 million in restitution to clients who bought oil and natural gas private placements of Provident Royalties LLC, which the Securities and Exchange Commission in 2009 accused of fraud.

In a Financial Industry Regulatory Authority Inc. letter of acceptance, waiver and consent, Next Financial sold $20 million of three separate Provident private placements from July 2008 to January 2009. Over that time, the firm’s due diligence was lacking, according to the Finra.

“Despite the fact that Next received a specific fee related to the due diligence that was purportedly performed in connection with each offering, beyond reviewing the private-placement memorandum for the offerings, [Steven Nelson, vice president of investment products and services] did not perform adequate due diligence on the [Provident] offerings,” according to the AWC, which was finalized last month.

Next Financial reported $136.1 million in gross revenue last year and has 866 affiliated reps and advisers, writes Kelly.

Next Financial and Mr. Nelson’s due diligence on Provident fell short in several areas, according to Finra. Mr. Nelson “did not travel to Provident’s headquarters in Texas to conduct due diligence on three separate offerings,” according to the AWC. He also “did not see any financial information regarding Provident Royalties, other than the information contained in the private-placement memorandum. Further, once [Mr.] Nelson had concluded that Next could sell [the three offerings], he did not conduct adequate continuing due diligence.”

The InvestmentNews.com article adds that outside due-diligence reports highlighted a number of red flags of the Provident offerings, and Mr. Nelson “should have scrutinized each of the [Provident] offerings, given the purported high rate of returns,” according to the AWC.

Next Fincancial’s $2 million in restitution to investors is part of a larger case brought by the receiver for Provident in federal court in Dallas. While at least 20 broker-dealers that sold Provident private placements have shut down or declared bankruptcy, others, now including Next Financial, have had the funds to pay the claims and remain open for business. About 50 broker-dealers in total sold Provident, which raised $485 million from 7,700 investors from 2006 to 2009.

Finra censured and fined Next $50,000, and fined Mr. Nelson $10,000 and suspended him as a principal for six months. Next Financial also failed to supervise adequately a registered rep’s sale of fraudulent life settlement products from 2007 to 2009, according to the AWC. The rep, who was not identified, sold $3.5 million in life settlement contracts to 35 clients.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have experienced losses with Next Financial Group, Inc., 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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Oct/11

17

Insured’s “Intent” Is Not an Issue in Pa. Life Settlements Case

Comments off · Posted by Securities Lawyer in FINRA

It was announced that a federal court decision in Pennsylvania has given a win for life settlement investors, deflating carriers’ argument that it is permissible for an insured person to apply for a life settlement with the express intent to sell it to a third party, writes Darla Mercado in an InvestmenNews.com article from October 12, 2011.

This suit filed by Principal Life Insurance Co. against brothers Matthew and Mark DeRose, trustees of their mother’s family trust, Judge Christopher C. Conner of the U.S. District Court for the Middle District of Pennsylvania in Harrisburg ruled that under state statute, insurable interest is determined solely based on the relationship between the insured person and the policy beneficiary.

Finding on “intent” is similar to recent rulings made in Delaware State Supreme Court (PHL Variable Insurance Co. v. Price Dawe 2006 Insurance Trust) and in the New York Court of Appeals (Alice Kramer vs. Phoenix Life Insurance Co., Lincoln Life & Annuity Co. of New York). State laws don’t refer to the “intent of the parties” at the time coverage begins, nor does it require that the transfer of a policy must be in “good faith,” the judge wrote in his Oct. 5 ruling.

Mercado goes on to say that the fact that several courts have already rejected the “intent” argument could shape the outcome of other stranger-originated-life-insurance lawsuits filed by carriers which claim that an insured person applied for a policy with a plan to sell it to an investor in the secondary market, lawyers say.

The article points out that the Principal-DeRose case concerns JoAnn DeRose, who in 2006 applied for three policies with a total of $35 million in death benefits. The JoAnn DeRose Family Trust was the intended owner and beneficiary of the policy, and Ms. DeRose’s sons Matthew and Mark were beneficiaries of the trust, according to court documents. The policies were funded through non-recourse premium financing provided by First Priority Bank, and the $1.51 million loan to cover the premiums was secured by the policies.

The credit approval memorandum from First Priority stated that the principal source of repayment for the loan is “the sale of the three assigned life insurance policies in the secondary market, via a life settlement transaction,” according to court documents.

The InvestmentNews.com article points out that Principal subsequently filed an instant declaratory judgment action against the DeRose brothers, claiming they bought the policies as part of a Stoli scheme and hid their use of non-recourse financing on the application for the policies. The insurer sought to have the policies voided because they lacked insurable interest at inception and the application documents had material misrepresentations. Principal also sought to retain the premiums to offset its expenses.

Then Judge Conner set aside the DeRoses’ alleged intent to sell the policies in the secondary market, and instead based insurable interest on the fact that Ms. DeRose’s sons were the beneficiaries of the trust, which in turn was the beneficiary of the insurance policies. Indeed, a parent-child relationship forms the basis for insurable interest, he wrote.

Judge Conner is allowing Principal to move forward with claims aiming to void the policies based on misrepresentations on the application. He is also permitting the carrier to seek retention of the premiums to offset the costs related to issuing the policies.

“While we can’t comment on pending litigation, The Principal does not support any form of investor-initiated life insurance where individuals or investors purchase insurance solely to bet on the early demise of an insured,” spokeswoman Joelle Kirchoff wrote in an e-mail. “We closely monitor our business for these types of policies. In policies where investor-initiated life insurance is suspected, lawsuits have been filed.”

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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Sep/11

1

Texas Reps Could Lose Securities Licenses for Selling Life Settlement Notes

Comments off · Posted by Securities Lawyer in FINRA

In an InvestmentNews.com article, Darla Mercado writes that two registered representatives with Planmember Securities Corp. could lose their securities licenses in Texas and face fines of $100,000 each for the improper sale of life settlement notes.

The brokers, Jimmy Wayne Freeman Jr. and Kris Bradford Rhoden, were due to appear at the State Office of Administrative Hearings on Aug. 4 for a proceeding that will determine whether the men lose their securities registrations and have to pay the fines, according to the Texas State Securities Board.

The article says that the state regulators claim that between June 2008 and February 2009, Mr. Freeman and Mr. Rhoden sold note agreements that were supposedly backed by life insurance policies and guaranteed a 10% simple-interest return for five years.

The two reps allegedly also sold a so-called Immediate Income Investment Plan, which involved a five-year note that was purportedly backed by life insurance policies, plus a five-year, fixed biweekly income account.

The InvestmentNews.com article points out that both products were issued by National Life Settlements LLC, a now-defunct firm that was shut down by Texas securities cops in 2009 after selling $30 million in unregistered investments — phony promissory notes that were supposedly backed by life settlements — to teachers and state retirees.

Ms. Mercado writes that the men also failed to get permission from Planmember to perform an outside business activity before receiving an undisclosed amount in commissions for selling away, according to the brokers’ hearing notices. State regulators also charge that when Mr. Freeman and Mr. Rhoden sold the life settlement notes, they told Planmember on their compliance questionnaire that they did not offer or sell such products.

Mr. Freeman and Mr. Rhoden allegedly failed to comply with Planmember’s supervisory procedures, which barred private-securities transactions and required them to get prior written approval from the broker-dealer before participating in a securities transaction outside of the regular course of business, Texas securities regulators claim.

Finally, it was reported that the men failed to make a timely update of their U-4 forms to show that they were marketing the life settlement notes, and both used their personal e-mail accounts to communicate with Planmember clients about the investments, according to the hearing notices.

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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