Brokers, advisers and insurance agents implicated in alleged $100 million investment fraud

In all, around 370 advisers sold the Future Income Payments, according to plaintiff's attorneys

Aug 23, 2018 @ 4:52 pm

By Greg Iacurci

Dozens of financial intermediaries — including stockbrokers, financial advisers, financial planners and insurance agents — are being sued for an alleged investment fraud that attorneys claim cost more than 1,000 investors, many of whom were retirees, at least $100 million in lost savings.

The law firm Peiffer Wolf Carr & Kane, which is representing investors, filed a wave of litigation against intermediaries and their respective advisory firms in courts across the country on Thursday, related to the sale of "structured cash flows" to clients. The products were offered by the firm Future Income Payments, which promised an income stream based on the repackaging of income from pension plans.

The lawsuits, targeting intermediaries in areas near Los Angeles, Houston, Chicago, northern Florida and Philadelphia, claimed advisers were negligent and breached their fiduciary duty and contracts when selling these investment products.

"More red flags existed than in a matador's closet," said Joseph Peiffer, attorney and managing shareholder at PWCK. "[Advisers] have a due diligence obligation," he added. "They should have caught this."

The advisers named in the lawsuits are: John Marshall of JB Marshall Financial; Michael A. Frisch of Secure Investment Management; Paul E. Ferraresi of Founders Group Inc; Matthew Linklater of Linklater Financial Group; Leland Blair Whiting of Horner Townsend & Kent; Gregory P. Durette of Future Secured Financial; and Daniel T. Sharpe Jr. of DTS Financial Services.

Mr. Durette, Mr. Linklater and Mr. Ferraresi declined to comment. The other defendants couldn't be reached for comment.

PWCK previously filed a similar complaint against Jeffrey A. Pickett of Pickett Financial in Ohio. He could not be reached for comment.

In total, the law firm said about 370 investment intermediaries across the country sold the structured cash flows offered by Future Income Payments, Mr. Peiffer said during a press conference on Thursday. The intermediaries received upfront commssions between 6% and 10%, he said. The firm expects to file individual lawsuits against 60 to 70 more advisers and insurance agents, and may ultimately file class-action litigation.

The alleged scheme worked on two levels, attorneys said. First, Future Income Payments offered pensioners upfront, lump-sum payments in return for a portion of their monthly pension payments over a specific term, often three to five years.

FIP used these pension streams to fund the cash flows sold to investors. Investors paid a lump sum to FIP in order to receive a monthly income stream for around 5 to 10 years, and were promised returns in the range of 6%-8%.

In addition, some investors were urged to fund premium payments for indexed universal life insurance policies with the income from these structured cash flows. Since FIP stopped making payments to investors in April 2018, many investors will likely lapse their policies, said Mr. Peiffer.

Several state regulators have found the upfront payments to pensioners to be unlawful loans that charged an effective interest rate of more than 100% in some cases.

FIP is run by a convicted felon, Scott Kohn, who pled guilty in 2006 to three felony offenses related to trafficking in counterfeit goods, according to the lawsuits. He was sentenced to 15 months in federal prison. Attorneys say he is on the run, and believe he is somewhere in the Philippines. No one from FIP could be reached for comment. Mr. Kohn formed Pensions, Annuities, and Settlements in 2011, and changed its name to Future Income Payments in 2014.

"Were starting to focus on the investment advisers," said Mr. Peiffer. The firm will then "start looking up the chain" at distributors, life insurance companies, accountants and custodians, he added.

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