SEC slaps charges against "retirement planners" for fraudulent life settlement sales

Investments were fraudulently marketed as "safe as CDs" and "federally insured"

May 11, 2015 @ 5:18 pm

By Darla Mercado

+ Zoom

The Securities and Exchange Commission on Monday filed charges against a pair of so-called retirement planners for fraudulent sales of life settlement interests to investors.

Defendants named in the SEC's complaint include Christopher A. Novinger, Brady J. Speers and their firm, NFS Group.

The commission alleged that Mr. Novinger and Mr. Speers, along with their company, told investors that the life settlement interests were “safe, guaranteed investments with annualized return average of 7-11%,” that they were “risk free” and “safe as CDs,” and that they were "federally insured.”

The men sold more than $4.3 million in life settlement interests to 26 investors, racking up about $515,000 in commissions. At least three of the investors were not accredited.

Life settlements permit investors to buy an unwanted life insurance policy from another individual. The seller gets cash up front — generally less than the death benefit of the policy — and the buyer becomes responsible for paying the premiums. The buyer collects on the death benefit when the insured person dies.

Life settlements have encountered their own share of difficulties, including the fact that the insureds don't always die on time. Insureds who live longer than forecasted cost investors more money in premiums.

PHONY TITLES AND INFLATED ASSETS

The SEC says that because the life settlement interests weren't registered as securities, the life settlement providers working with Mr. Speers and Mr. Novinger required the investors to be accredited. That is, they needed to have had a net worth of at least $1 million, excluding the value of their primary home, or their individual income must have exceeded $200,000 in each of the last two years, or their joint income with their spouse must have exceeded $300,000 in each of the last two years.

In order to get the investors to qualify, the men allegedly inflated the investors' assets using a phony “net worth calculator,” according to the complaint. The calculator inflated the assets by counting anticipated Social Security, pension and other payments 20 years into the future, according to the SEC.

In one situation, the calculator inflated a couple's assets, excluding their home, from $263,000 to $1.5 million, according to the SEC, the latter of which would make them appear to be accredited investors. That same couple invested 20% of their actual net worth in life settlements, according to the complaint.

Further, in order to give themselves a veneer of expertise, Mr. Novinger and Mr. Speers allegedly dubbed themselves “licensed financial consultants” and “licensed financial strategists,” titles that are meaningless, according to the complaint.

NO GUARANTEES

The SEC also took issue with the way the men presented the life settlements. The agency claimed that the offering materials for the life settlements said that there was no annual rate of return, that the investment was not liquid, that there was uncertainty on the life expectancy of an insured person and that it was highly speculative.

Nevertheless, the men told the investors that these were “safe investments with extraordinary returns,” the SEC alleged. “You cannot lose a dollar” and “not only will this asset class earn 7-9% without risk, but it is a short-term investment that is safe as CDs and federally insured.”

Those were false statements, the SEC said.

In its complaint, the SEC said it seeks injunctive relief, the return of the allegedly ill-gotten gains with interest and other penalties.

The men, their firm and two other related entities were also charged for acting as unregistered broker-dealers. The SEC says that interests in life settlements are securities, and selling them without the appropriate broker-dealer registration or without being associated with a registered broker-dealer is a violation of securities laws.

A call to the defendants' attorney David Clouston at Sessions Fishman Nathan & Israel was not immediately returned.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Jun 27

Webcast

Emerging Market Debt: 5 Forces at Work

When it comes to emerging market debt, there are a series of forces that help you drive better results for your clients. In today's continually changing market environment, it is critical to know the forces at play to help keep your investment... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Featured video

Events

Pershing's Dolly: 3 challenges facing advisers ahead

What are the biggest challenges facing financial advisers today? Pershing Lisa Dolly explains some of the hurdles, and how great advisers are overcoming them.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.

CFP Board's proposal to expand fiduciary duty draws praise, carries risks

Some question whether brokers will drop the CFP mark or if the CFP Board will strictly enforce its new standard.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print