[Post updated 2020] There is a revolving door between the securities and insurance industries. Some financial professionals switch industries or become licensed in both in order to offer new financial products to clients. Others, however, however, have a more sinister motive.
The National Association of Insurance Commissioners is working with the Financial Industry Regulatory Authority (FINRA) to quickly identify bad stockbrokers who simply leave the brokerage industry and get relicensed as insurance agents. Until now, there has been no mechanism to quickly share information between insurance regulators spread out over 50 states.
FINRA, the 5o states securities commissioners and the SEC make information about bad stockbrokers available on one website. That isn’t the case within the insurance industry, however, making it easy for bad brokers to become insurance agents.
Complicating the matter is that many products sold by insurance agents are really securities. Unfortunately, the public is left unprotected.
Last week, a stockbroker who left the securities industry several years ago pleaded guilty to fraud charges related to a Ponzi scheme. Sunil Sharma, age 68, faces 20 years in prison when sentenced. Beginning in 2008, Sharma raised over $8 million from investors and lost it in a risky options trading scheme. When the money ran out, he simply used money from new investors to pay old investors, a classic hallmark of a Ponzi scheme.
Not all the money went to pay new investors. Prosecutors claim Sharma used $2.5 million to support his own luxury lifestyle. That money was spent on a luxury home, Mediterranean cruise, Mercedes and BMW.
For many years, Sharma was a stockbroker. He worked at several big brokerage firms including Merrill Lynch, A.G. Edwards and Raymond James. After his clients lost significant amounts of money, he relinquished his securities license.
What did he do next? He became an insurance salesman.
Why an insurance salesman was selling an options trading strategy isn’t clear. Unfortunately, investors frequently do not what licenses a financial professional needs. For example, most investors have no clue which type of annuities must be sold by an insurance agent versus those that require a securities license.
Update: In September 2015, Sunil Sharma was sentenced to 33 months in federal prison and ordered to pay $6,238,982 in restitution. Unfortunately, convicted felons are rarely able to pay restitution. Victims are lucky to receive ten cents on the dollar.
The Revolving Door Continues – Fraudsters Still Manage to Stay in Business
Despite the 2015 agreement between FINRA and the National Association of Insurance Commissioners, fraudsters still manage to bilk investors of their hard earned money even after they have lost their licenses. Take for example, Gregory W. Anderson, Aaron R. Andrew and Robert S. “Lute” Davis. The three were charged by the SEC in December 2018 with securities fraud for their involvement in the Woodbridge Group of Companies, a Ponzi scheme that bilked investors of over $1 billion.
That should have been the end of the three. It wasn’t. A February 2020 investigation by InvestmentNews found that although they were barred from the securities industry they still are licensed to sell insurance. Anderson is licensed in Colorado, Andrew in Utah and Davis in Texas. According to Bruce Kelly, the journalist behind the investigation, “The public still remains skeptical of the financial advice industry and advisers as a result of the disaster of the 2008 financial crisis. The lack of transparency around insurance agents who have been booted from the securities side of the financial advice industry is appalling.” We agree.
Before you buy an annuity or make any type of investment, check FINRA’s Brokercheck too. It’s free and user friendly. Even if the person asking you to invest is an insurance agent, its still wise to check to see if he is or was a stockbroker / investment adviser, and if so, what type of record he has.
With so many bad brokers becoming insurance agents, it pays to check. The entire process takes less than five minutes.
Even if you checked and did your due diligence, sometimes you still get ripped off. If that happens, the next step is figuring out how to sue an insurance agent.
How Do I Sue My Insurance Agent?
“How do I sue my insurance agent” is a question we hear often. Most insurance agents have insurance and so do the agencies that employ them. Regardless of the type of license held by an insurance agent, if the agent sells through an agency, his or her employer may be liable for the losses. Sometimes the carrier can also be liable but laws vary widely from state to state.
Many of the cases we see involving insurance agents involve annuities. And we also see many cases involving seniors. Typically these cases involve new investors and seniors who are swindled into buying unsuitable products or selling their existing annuity contracts for unfair amounts. (Bad agents will advise you to sell your annuity at a loss and without disclosing tax and surrender charge consequences. They want you to sell so you can reinvest with them.)
If you lost money from a bad investment or annuity, give us a call. Even if the agent is out of business (or in jail), it may be possible to get back your hard earned money. We have had great success finding deep pockets and collecting even when the agent is long gone.
For more information, visit our investor and stock fraud recovery page. Ready to see if you have a claim? Contact us online, by email or by telephone at (202) 800-9791. All inquiries are kept strictly confidential. Cases accepted nationwide. Most cases accepted on a contingent fee basis.
MahanyLaw – America’s Fraud Recovery Lawyers