An adviser has been barred by state securities regulators from serving as an investment adviser representative and broker in the state of Texas for fraudulent practices related to the sale of life settlements.
James Poe, a Fort Worth-based adviser and president of Jim Poe & Associates Inc., received undisclosed payments through another firm he owned — International Alternatives PR — which consulted on selection of the life insurance policies and represented fraudulent business activity, according to a Mar. 18 order from the Texas State Securities Board.
The regulator also said Mr. Poe received 10% commissions for the product sales from 2011 to 2015, even though he wasn't registered as an agent of the firm, violating Texas state securities law.
Mr. Poe did not return a request for comment by press time. The respondents to the case, including Mr. Poe and Jim Poe & Associates, waived their rights to a hearing, to present evidence or to appeal, according to the order.
With life settlements, investors buy an unwanted life insurance policy on the secondary market, continuing to pay the seller's policy premiums and ultimately collecting the death benefit when the insured person dies. The seller receives a sum greater than the policy's cash surrender value, but less than the net death benefit.
Life settlements have their share of risks, including the risk that the insured individual lives longer than anticipated, which ends up costing life-settlement investors more money through premiums.
The Financial Industry Regulatory Authority Inc. issued an investor alert for seniors in 2009 warning of aggressive sales tactics and abuse that can occur among life-settlement providers. That same year, Finra issued Regulatory Notice 09-42 to remind brokers and broker-dealers of their obligations regarding variable life settlement transactions, and expressed concern for excessively high commissions and fees charged through these products.
From July 2011 through August 2015, Mr. Poe recommended that certain individuals invest in life settlements, which were issued by SRP-LS200, a firm controlled by Mr. Poe, according to state regulators, and investors were promised a 75% return.
Investor money was used to purchase the life insurance policies, pay premiums on the policies and pay “all associated costs.” Those costs included a 10% commission paid to Mr. Poe, as well as undisclosed payments in the amount of 20% of investor funds to International Alternatives PR, also owned and controlled by Mr. Poe, for consultation on the identification and selection of the life insurance policies, according to state regulators.
Not disclosing the 20% fee paid to International Alternatives and Mr. Poe's ownership of that firm represented “intentional failures to disclose material facts to the [life settlement] investors and constitute fraudulent business practices,” according to the order.
"The market value of a life insurance policy tied to a life settlement investment is correlated to the likelihood that the life settlement will provide a higher return to investors. Thus, the fact that approximately 30% of investor's funds were directed to Mr. Poe and his company presented a material risk to the investor's potential return,” Ronak Patel, deputy securities commissioner at the Texas State Securities Board, said in an emailed statement.
“Mr. Poe's intentional failure to disclose these facts was a significant breach of the trust those clients afforded him," he said.
Further, Mr. Poe was not registered with the state securities commissioner as an SRP-LS200 representative during the relevant 2011-15 period, and receipt of commissions for SRP-LS200 life-settlement sales therefore violated state securities law, according to the order.