Phony Philly adviser latest snagged for unregistered securities

A former registered broker in Philadelphia is the latest in a long line of one-time brokers who ditch the securities business to sell high-priced, high-risk investments to retirees desperate for steady returns.

The phony adviser in question is Dean Vagnozzi, whose firm is called A Better Financial Plan. After a settlement with the Securities and Exchange Commission last month revealed he was selling millions in unregistered securities to clients who were not wealthy enough to buy them under industry rules, his customers are probably calling Vagnozzi and his firm something else.

Vagnozzi is not a registered financial adviser but he sure acted like one, according to the SEC. He is, however, a licensed insurance salesman.

In total, Vagnozzi raised $32 million from 339 clients to invest in life settlements, or unwanted insurance policies that consumers sell that can come with risks. The group of funds Vagnozzi used and managed to buy the life settlements were not registered with the Securities and Exchange Commission, a big-time no-no, and nearly half the investors were not accredited, according to the Commission's cease and desist order, meaning they did not meet high net worth requirements to invest in those types of securities. He sold them as limited partnerships, and to buy an LP or invest in one, you have to be accredited, meaning wealthy or financially sophisticated.

Things have spiraled out of control for Vagnozzi, his firm and his clients since that settlement, which was dated July and in which he agreed to pay back $490,000 to customers.

Later in July, the SEC filed a complaint against a company, Par Funding, that lent to small businesses in order to generate healthy returns to investors, and alleged that Vagnozzi, along with several other individuals and companies, acted as a funnel for investor money into a fraud. It is not clear how much money Par Funding raised from investors through Vagnozzi.

According to reports in the Philadelphia Inquirer, A Better Financial Plan is now in receivership and Vagnozzi is fighting for control of the firm in order to maintain its insurance business.

Calls to A Better Financial Plan on Thursday were not returned. The firm's website touts returns of 10% to 14% and $200 million invested for clients.

"Vagnozzi knew what it was like to be registered in the securities business," said Joe DiStefano, a business reporter for the Philadelphia Inquirer who has covered the Par Funding matter. "The thinking by these types of salesmen is, if you’re not registered you can’t be hauled in before Finra or sued by the SEC in court for violating your license because you don’t have a license."

But Vagnozzi kept his license to sell insurance in Pennsylvania, DiStefano noted. "And there is no federal regulation for insurance."

Vagnozzi was registered with a couple of broker-dealers for the proverbial cup of coffee about a dozen years ago and then ditched his securities license but hung onto his registration to sell high-priced insurance products.

My belief is that wannabe advisers like Vagnozzi drop their securities licenses because the industry is closely regulated. I've been writing about the financial advice business for two decades, and such oversight makes it more difficult for advisers to push high-priced, high-risk products such as life settlements and loans to small businesses.

LURKING ON THE FRINGES

As InvestmentNews noted in the spring of 2019, investment funds promising above-market returns that employ networks of brokers, former brokers, insurance agents or others lurking on the fringes of the industry to sell their investments are taking advantage of unsuspecting investors.

Making matters worse, Vagnozzi was well known throughout the Philadelphia area, spending lavishly on dinners for prospects and advertising heavily on a popular, local all-news radio channel.

According to the SEC, as head of A Better Financial Plan, Vagnozzi encouraged the public to “invest like the big boys,” and touted his firm as a place to buy life settlements. He claimed they were the “highest yielding, safe” investments in the market, according to the SEC.

One of his chief marketing techniques was to broadcast frequent radio advertisements on local Philadelphia radio stations.

From April 2013 to August 2017, he recorded multiple variations of these advertisements using his own voice where he, as head of A Better Financial Plan, promoted “double-digit returns without the volatility of Wall Street,” according to the SEC.

Vagnozzi invited listeners to call a toll-free number to learn about “an extremely secure investment that guys like Warren Buffett and other institutional investors have been using for decades,” according to the commission.

"I've been getting calls from seniors for three to four years, asking why can’t they get that, that 13% return," said Bob Costello, a local financial adviser in the Philadelphia area. "I tell them that they are high-risk and they really don't want that, but all the seniors listen to is the news station."

"You could not turn the radio on to hear the traffic report and not hear that ad," Costello said.

The question is, why did it take the SEC so long to pay attention to the same ads before dropping the hammer on Vagnozzi? Apparently, the Commission is only concerned with phony financial advisers like Vagnozzi until they raise hundreds of millions of dollars from retirees.