June 16, 2020
There are circumstances by which an elderly client may indeed form a genuine, close relationship with a financial professional. Maybe the elderly client has known the investment adviser for 40 years. Maybe the client goes to the same church as the stockbroker. Maybe they've lived next door for 30 years. Maybe. Maybe. Maybe. And depending upon all the maybes, perhaps a lonely client decides to name the financial professional as a beneficiary in her Will or in a life insurance policy. On the other hand, notwithstanding all those maybes, perhaps there's something wrong and predatory going on with the beneficiary thing. Then again, maybe not.
Case in Point
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, Hector Luis Luna submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.
In the Matter of Hector Luis Luna, Respondent (FINRA AWC 2019063560201)
The AWC alleges that Hector Luis Luna was first registered in 2012 with FINRA member firm Pruco Securities, LLC. The AWC alleges that Luna "does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization."
The Elderly Customer
As alleged in part in the AWC:
[I]n September and October 2018, Luna assisted an elderly Firm customer ("Customer A") in preparing beneficiary change forms naming Luna's wife and adult children as the sole beneficiaries on two life insurance policies held by Customer A. The combined death value of these policies was $350,000. Customer A initially offered to designate Luna as the beneficiary, but Luna declined, citing Firm policies, and suggested Customer A instead name Luna's wife and children as the beneficiaries. Luna then submitted the beneficiary forms without notifying the Firm that his family members were the designated beneficiaries.
Shortly after Luna's termination in 2019, Customer A submitted a series of updated change forms replacing Luna's wife and children as beneficiaries. Luna's wife and children therefore did not obtain any funds from Customer A as a result of their beneficiary designations.
The AWC alleges that during all times relevant to the beneficary changes, Pruco's procedures prohibited its registered representatives or their family members from serving as beneficiaries to any customer insurance policy. Moreover, Luna purportedly confirmed his understanding of the firm's beneficiary policy on an annual compliance questionnaire and further affirmed that he would report any known violation to his manger.
The AWC asserts that:
[A]ccording to a Form U5 the Firm filed on January 30, 2019, Luna was discharged for
"failure to meet minimum production requirements." After completing an investigation
related to the conduct described in this AWC, the Firm filed a Form U5 Amendment on
August 6, 2019, stating that Luna "violated Company policy by facilitating a change of
the beneficiaries on a client's life insurance policy to [Luna's] wife and children."
In accordance with the terms of the AWC, FINRA found that Luna had violated FINRA Rule 2010; and the self regulator imposed upon him a $5,000 fine and an three-month suspension from association with any FINRA member in all capacities.
Bill Singer's Comment:
Only a $5,000 fine and a three-month suspension?
At first blush, the AWC fact pattern seems to depict Luna as having taken advantage of an elderly customer. After a second read-through, however, you note that "Customer A initially offered to designate Luna as the beneficiary . . ."
Does that mean that the idea of that designation was solely a matter of the elderly client's free will and not at all influenced by Luna?
To Luna's credit, after the elderly customer "initially offered" to name him as the beneficiary, the AWC asserts that he "declined." Okay, that's nice.
On the other hand, after declining the role of beneficiary, Luna "suggested Customer A instead name Luna's wife and children as beneficiaries." Ooops, now we have a development to Luna's detriment. After personally declining to be named a beneficiary, he suggested that the elderly client named his wife and kids.
Does that mean that the idea of naming Luna's wife and kids was solely a matter of the elderly client's free will and not at all influenced by Luna?
Now things are getting dicey. After all, if Luna had complied with Pruco policy, he would have notified the firm that his family members had been name as beneficiaries in an elderly customer's life insurance policies. Instead, the AWC asserts that Luna didn't make that disclosure, and, worse, it was Luna who personally submitted the beneficiary forms.
Finally, after Pruco had terminated Luna, Customer A updated her beneficiary forms to remove Luna's wife and kids. Inexplicably, the AWC is silent as to what prompted the elderly client's change of heart. That silence from a regulator is disquieting.
As I often note, sometimes FINRA likes to run up a negative narrative when a Respondent is not represented by a lawyer -- which seems to be the case here given the absence of a lawyer's confirmation and signature on the Luna AWC. As such, I'm prepared to allow for a less predatory version of Luna's conduct. On the other hand, why are we left wondering as to the essential elements of his intent and that of the elderly client's? Sadly, the AWC lacks sufficient content and context.
In trying to figure out whom to believe and what to believe, I consider online FINRA BrokerCheck records as of June 16, 2020, which disclose that on November 4, 2004, the Florida Department of Financial Services entered into a Stipulation and Consent settlement with Luna whereby he paid a $5,000 fine based upon allegations that he had:
AIDED AND ABETTED UNLICENSED PERSONS IN THE TRANSACTION OF INSURANCE AND ACTING AS APRIMARY [sic] AGENT FOR MORE THAN ONE FULL TIME AGENCY.
As set forth on BrokerCheck, Luna offered this statement:
You can argue that I'm being a stickler here but how the hell does that above Florida Department of Financial Services Stipulation and Consent not get mentioned in the AWC under "Relevant Disciplinary History?"
I WAS REGIONAL SUPERVISOR FOR ESTRELLA INSURANCE IN 2004 FOR MIAMI-DADE COUNTY. THE ORLANDO ESTRELLA AGENCY LOST THEIR LICENSED 220 MANAGER AND ESTRELLA INSURANCE MAIN OFFICE PLACED MY 220 PROPERTY AND CASUALTY LICENSE TEMPORARILY IN THAT OFFICE. THE DEPARTMENT OF FINANCIAL SERVICES VISITED THE AGENCY FINDING THAT THE CUSTOMER SERVICE REPRESENTATIVE PRESENT HAD NOT YET COMPLETED HER REQUIREMENT FOR HER 442 LICENSE OF BEING PHOTOGRAPHED TO OBTAIN HER LICENSE. THE DEPARTMENT CONDUCTED AN INVESTIGATION REGARDING THE ALLEGATION THAT I AIDED AND ABETTED UNLICENSED PERSONS IN THE TRANSACTION OF INSURANCE AND ACTING AS A PRIMARY AGENT FOR MORE THAT [sic] ONE FULL TIME AGENCY. THE DEPARTMENT OFFERED A SETTLEMENT STIPULATION ($5000 FINE FOR HECTOR LUNA WHICH WAS PAID BY ESTRELLA INSURANCE) IN LIEU OF RECOMMENDING THAT A FORMAL ADMINISTRATIVE COMPLAINT BE FILED AGAINST ME. AS A RESULT, THE FINE WAS PAID AND MY LICENSE WAS PLACED IN PROBATION FOR ONE YEAR, WHICH WAS SUCCESSFULLY FULFILLED.
After all, FINRA charged Luna with intentionally failing to comply with Pruco's compliance policies concerning providing notice to his employer about a family member being named as an insurance beneficiary. You'd sort of think that a prior settlement with a state insurance regulator involving the aiding and abetting of transactions by unlicensed insurance persons and violating the state's prohibition against acting as a primary agent for more than one full-time agency might be deemed a "relevant" prior disciplinary action by FINRA. Then again, what do I know?