For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, William F, Weiss, submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter William F, Weiss,Respondent (AWC 2008015164801, July 2, 2012).
Weiss has been registered with Metlife Securities Inc. as an Investment Company Products/Variable Contracts Representative since March 15, 2000;and, thereafter, as an Investment Company Products/Variable Contracts Principal (March 2000); General Securities Representative (April 2003); and General Securities Principal (November 2003). The AWC asserts that Weiss had no prior disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator.
During the relevant period of at 2005 to September 2008, Weiss was a Managing Director and Branch Office Manager of The Weiss Group, a MetLifeSecurities office of supervisory jurisdiction ("OSJ"). In his director/manager capacities at the OSJ, Weiss supervised two particular registered representatives, who were engaged in life settlement transactions away from MetLife Securities - both reps were terminated, respectively, in February and September 2008.
SIDE BAR: The AWC characterizes "life settlements" or "senior settlements" as "transactions in which an insurance policy owner sells a life insurance policy to a third party for an amount that exceeds the policy's cash surrender value, but is less than the expected death benefit of the policy." On the heels of the viatical settlement industry that largely catered to terminally ill policyholders with life expectancies of less than two years, life settlements tend to focus on policyholders with two to ten years of life expectancy and policies with relatively higher death benefits. For more details on these policies, visit the North American Securities Administrators Association website andFINRA's website.
During the relevant times, MetLife Securities' procedures generally prohibited its representatives from from senior/life settlement sales or receiving a finder's fee for referring a client to a senior/life settlement company. In order to engage in such prohibited transactions, the representative must have a manager's express approval and the written prior approval of the firm's Corporate Ethics and Compliance Department.
The AWC alleges that during the relevant time cited above, the two registered representatives improperly engaged in life settlement transactions away from MetLife Securities and and without the firm's knowledge or prior approval The AWC further alleges that Weiss knew about the improper transactions and their non-compliance with the firm's notification and approval policies. Further, Weiss allegedly assisted in the purchase of laptop computers and other computer equipment that was used for the life settlement business, which was kept separate from the business lines that MetLife Securities reviewed. Finally, Weiss allegedly notarized six documents related to at least one of the life settlement transactions at issue.
The AWC alleges that Weiss took no steps to bring the life settlement transactions to the firm's attention or to obtain the requisite approval; moreover, in his capacity as supervisor, Weiss signed OutsideBusiness Activity Disclosure Statements dated November 15, 2005; September 14, 2007; September 27, 2008; and February 29, 2008) on which the two referenced registered representatives answered "No" as to whether they were involved in "Business Outside the Enterprise" (a query that specifically included a reference to involvement in " senior/life settlements").
Each of the Outside Business Activity Disclosure Statements contained "Yes" responses (on two of one registered person's forms and on one of the other's) to a separate question asking if the registered person had been "Soliciting, Selling, or Servicing Non-Variable Insurance or Annuities" of other companies; notwithstanding, when asked on the forms to list all product lines from which they received commissions for such transactions, both registered reps listed life, health, disability and/or long term care insurance- neither rep listed life settlement transactions.
Based upon the above allegations, the AWC asserted that Weiss knew or should have known that the answers provided by the two reps on the Outside Business Activity Disclosure Statements were inaccurate, resulting in his failure to properly supervise in accordance with NASD Conduct Rule 3030: Outside Business Activities of an Associated Person, which caused violations of NASD Conduct Rules 3010: Supervision and 2110: General Standards. In accordance with the terms of the AWC, FINRA imposed upon Weiss a $10,000 fine and a 6-month suspension in a principal capacity.
The Life Settlement industry has certainly garnered scrutiny from Wall Street's regulators and this case is likely not the last word you're going to hear on the topic - particularly as Baby Boomers age. Consequently, FINRA has fired a warning shot - loud and clear - that it's not only going to investigate the underlying sales but also the supervisory activities of registered principals and the member firm.
In my opinion, larger financial organizations with a history of cross-selling and integrated products - Citi, Bank of America, Wells Fargo, JP Morgan, LPLA, Ameritrade - would be well advised to circulate this case among its managers and supervisors. The AWC just doesn't offer much in the way of forgiveness or a refuge for the too-often lax practices of many overwhelmed supervisors.
This case is a fine bit of regulatory work by FINRA. The AWC clearly sets forth the fact pattern, explains why the self-regulatory organization opted to go after the supervisor, and provides compelling rationale for the sanctions imposed. As to Weiss's $10,000 fine and six-month Principal-only suspension, he seems to have been exceptionally well represented by his legal counsel - without question, the sanctions could have been far worse.