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

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

Upcoming Event

Nov 13

Conference

Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

Events

InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

Dawn Bennett found guilty of $20 million Ponzi scheme

Jury took less than five hours to convict the former financial adviser and radio host.

10 advisory firm employee benefits you won't believe

Some advisory firms stand out for their creative efforts to keep their troops happy and engaged. Spa retreat, anyone?

Small-cap funds take a beating

For most of the year, the sector had outperformed, but that all changed last week.

SEC commissioner Stein suggests Congress address differing broker, adviser standards

She said lawmakers may have to change 'solely incidental' language that lets brokers give advice.

Social Security and the fear of missing out

How to lower expectations when clients think they're owed a bigger Social Security benefit.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print