People worry about things falling through the cracks, whether it’s remembering to pay a utility bill or send a birthday card. A barred broker is far too large an object to fall between the cracks, and yet in some cases that’s what seems to be happening.
InvestmentNews has written repeatedly about the problem of brokers who are disciplined by the Securities and Exchange Commission or the Financial Industry Regulatory Authority Inc. but retain their licenses from state regulators to sell insurance products. Already this year, InvestmentNews senior columnist Bruce Kelly has written two articles about such brokers.
In the Feb. 3 issue, he discussed the case of three advisers who were barred by the SEC after having been charged with selling the Ponzi scheme of the Woodbridge Group of Companies, whose former CEO pleaded guilty last summer to running a $1.3 billion fraud. The three brokers earned as much as $2 million each for selling the fraudulent investments. While none were criminally charged, as of a few weeks ago, all of them still had their state licenses: one from Colorado, another from Utah and the third from Texas.
In last week’s issue, Mr. Kelly detailed the exploits of Ronald D. Morley, who is based in Maryland. In 2006, Mr. Morley’s home state barred him from selling securities for indicating to investors that certain investments were safe, even though some state regulators had ruled otherwise. In 2016, the SEC barred him from working at a broker-dealer or registered investment advisory firm after he convinced 130 clients to invest in a fraudulent stock offering called Summit Trust Co., earning more than $3 million in commissions in the process. In 2018, Mr. Morley was convicted of securities fraud in Kansas in a case that cited $800,000 in losses suffered by four investors in the state. He was given 36 months’ probation.
That’s quite a list of accomplishments. Yet Mr. Morley is still licensed to sell insurance in Maryland. The state revoked his securities license in the fall, but he has appealed that order.
The fact that salespeople who have been barred by one regulator can continue to get a green light from another regulator is confounding, especially when they were barred for putting people’s money, quite possibly their retirement savings, into bogus investments.
Of course, this is partly a reflection of the complexity of U.S. insurance regulation, which occurs at the state level, creating a challenge to coordinate under the different laws and regulations of the 50 states.
In a step forward, the National Association of Insurance Commissioners is trying to ensure that state insurance departments are up to date on insurance producers’ status with Finra. Last year, the NAIC and Finra reached a memorandum of understanding on information sharing. Now the NAIC’s database of insurance salespeople who are licensed by the states includes the active or inactive status of those who are also licensed by Finra. Separately, the NAIC notifies a state of Finra actions involving insurance salespeople licensed in that state.
The NAIC does not have an information-sharing agreement with the SEC because of confidentiality considerations, but the SEC has information-sharing agreements with some states, according to an SEC spokesman.
So, now it’s down to the states to filter out the rogues from the ranks of the insurance salespeople they’ve licensed. While state insurance regulators may not be required to act in lockstep with Finra or the SEC, surely a salesperson who sells investors a Ponzi or other problematic securities shouldn’t be permitted to retain a state insurance license and the credibility that confers.
Chasing productivity is one thing, but when you're cutting corners, missing details, and making mistakes, it's time to take a step back.
It is not clear how many employees will be affected, but none of the private partnership’s 20,000 financial advisors will see their jobs at risk.
The historic summer sitting saw a roughly two-thirds pass rate, with most CFP hopefuls falling in the under-40 age group.
"The greed and deception of this Ponzi scheme has resulted in the same way they have throughout history," said Daniel Brubaker, U.S. Postal Inspection Service inspector in charge.
Elsewhere, an advisor formerly with a Commonwealth affiliate firm is launching her own independent practice with an Osaic OSJ.
Stan Gregor, Chairman & CEO of Summit Financial Holdings, explores how RIAs can meet growing demand for family office-style services among mass affluent clients through tax-first planning, technology, and collaboration—positioning firms for long-term success
Chris Vizzi, Co-Founder & Partner of South Coast Investment Advisors, LLC, shares how 2025 estate tax changes—$13.99M per person—offer more than tax savings. Learn how to pass on purpose, values, and vision to unite generations and give wealth lasting meaning
