Compliance
Texas Insurance Agent Faces Up To 170 Years For Selling $5 Million In Fake Annuities
Sunday, July 31, 2011 21:26

Tags: fraud | regulation

An Amarillo insurance salesman has confessed to writing $5 million worth of nonexistent "private" annuity contracts and could be sentenced to spend over a century in prison.

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John Langford is already 76, but even a younger man would find the penalty steep.

 

He faces 99 years for seven counts of fraudulent securities sales -- a first-degree felony -- and another 16 to 80 years for eight counts of acting as an unregistered agent. 

 

While the final verdict may indeed be severe when it comes down in September, the process has taken awhile to come around.

 

Langford reportedly sold a lot of his fake annuities in the 2004-to-2006 timeframe and was only indicted back in November 2009.

 

Now, Langford -- whose motto used to be "we don't promise to make you rich, but we guarantee not to make you poor" -- seems to just want to get it over with.

 

He signed a confession and has acknowledged his guilt.

 

The fake contracts in question bore plenty of warning flags.

 

They were touted as paying up to 8% a year, and in at least one high-profile account were set up so that even elderly clients would have to wait at least a decade before the checks started arriving.

 

The scheme came to light when the legal guardian for one of his oldest and biggest clients noticed that Langford's annuities weren't actually paying out. Moreover, he sold them after the client was already senile.

 

 

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Raymond James Fights $1.7 Million Annuity "Churning" Settlement
Friday, July 29, 2011 06:58

Tags: Raymond James

After being fined $1.7 million for failing to monitor a rep who was apparently churning an elderly client's annuity portfolio, Raymond James is fighting the arbitrators on what looks like technical grounds.

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The initial complaint was settled in May by awarding the client -- at the time an elderly couple, the wife of which is now deceased -- $1.7 million in cash.

 

However, the arbitrator failed to require the client to return the annuities at the center of the case.

 

At some point between 2002 and 2006, former Raymond James rep Paul Davis seems to have exchanged one set of contracts for another, generating fees and charges along the way.

 

Since the $3.8 million portfolio actually turned a $800,000 profit from the trades, Raymond James protests that the math doesn't add up.

 

The firm also argues that its client agreements stipulate that all arbitration be handled under Florida law, whereas the case was heard under Texas rules.

 

The case goes to court in about six weeks.

 

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SEC Shifts The Hot Seat On Structured Product Sales From Due Diligence To Suitability
Friday, July 29, 2011 06:43

Tags: sec | suitability

The SEC took a close look at how brokers have been selling structured products and the "due diligence" charge that almost brought down Securities America doesn't appear once in the final report.

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Securities America and other firms were initially chastised for not doing their due diligence on the somewhat exotic products they were selling.

 

But now the SEC at least has tacitly confirmed what we knew all along: the real problem wasn't that the products themselves smelled bad, but that they were being sold too aggressively into accounts that couldn't handle them.

 

It's hard to punish an advisor or a firm for picking an investment that looked perfectly good at the time but then implodes. "Due diligence" doesn't protect anyone from simply making the wrong bet in the wrong market.

 

Suitability is another story. The SEC found plenty of cases where reverse convertible notes were sold to clients who simply couldn't tolerate the risk of what are effectively derivative instruments.

 

One issue is training and advisor education. Many structured products were sold as low- or no-risk investments. If the advisors themselves really believed the hype, they would have thought these products were actually suitable for their clients.

 

The SEC recommends specialized training for any advisor who sells exotic notes -- principal protection, enhanced income, participation, the whole nine yards.

 

They also want to make sure controls are in place to ensure that the suitability determination process actually happens. That, in turn, means giving supervisors a way to compare structured product holdings to investment policy statements. 

 

 

 

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Massachusetts Investigates Advisor Social Media Practices
Thursday, July 28, 2011 07:07

Tags: Social Media

Financial advice in Massachusetts is a high-tech business, with about 44% of state-registered advisors already using social media to reach clients and prospects.

This Website Is For Financial Professionals Only


 

It also means the state is gearing up to regulate Twitter, LinkedIn, and Facebook use more effectively.

 

The Massachusetts Secretary of State, which also handles the state's securities regulation, found out earlier this month that while close to half of its RIAs are using social media, only 31% who do have written policies in place.

 

Furthermore, of the firms using social media, only 43% archive their Tweets and other messages for compliance purposes.

 

To improve these practices, the state regulator has formed a working group and plans to get new guidelines out by the end of the year.

 

Wondering how Massachusetts advisors communicate? Most (42%) use LinkedIn. Beyond that, 20% use their own site to post updates, 14% are on Facebook, 8% use Twitter, and another 8% blog somewhere else.

 

 

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Another Radio-Driven Investment Scheme Indicted For Fraud
Monday, July 25, 2011 07:20

Tags: fraud

Federal prosecutors have formally indicted a 73-year-old religious talk radio host for allegedly bilking his listeners out of $194 million.

This Website Is For Financial Professionals Only


 

Pat Kiley ran weekly radio show "Follow the Money" out of Minnesota, but the U.S. Attorney's Office argues that he advised his listeners to invest in a typical Ponzi scheme: guaranteed double-digit returns, completely liquid.

 

The scheme was marketed to Kiley's deeply religious audience between 2004 and 2009 as part of a vaguely apocalyptic scenario involving "financial armageddon."

 

He maintains his innocence and says he was only reading from scripts prepared by the rogue advisors at the center of the scheme -- who gave him access to a home recording studio to run his show, and who are now in jail.

 

Nonetheless, Kiley faces up to 20 years imprisonment himself if found guilty of wire and mail fraud, money laundering, and conspiracy.

 

His show seems to have been pulled from just about all of the 200 stations on which it ran.

 

 

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