Recent sanctions by state securities regulators against unlicensed brokers who sold pieces of an alleged billion-dollar real estate Ponzi scheme highlight a perennial problem the financial advice industry continues to ignore: insurance agents, with problematic histories selling securities, who market themselves to individuals as wealth and retirement planners.
In these situations, how are consumers supposed to know and understand whether the person making recommendations about their finances is kosher?
Securities regulators in Florida and Colorado recently have brought actions against 17 unregistered brokers, some of whom continue to hold licenses to sell insurance in their states. The fake advisers offered or sold unregistered securities of Woodbridge Capital Investments Inc., a $1.2 billion Ponzi scheme, according to the Securities and Exchange Commission.
In December, The Woodbridge Group of Companies and its founder, Robert Shapiro, were charged by the SEC with orchestrating the massive alleged fraud, which targeted 8,400 investors.
Woodbridge, formerly based in Boca Raton, Fla., ran a real estate scheme based on short-term, one-year loans and mortgages, according to the SEC's complaint. It advertised its primary business as issuing loans to supposed third-party commercial property owners that paid Woodbridge 11% to 15% annual interest for so-called "hard money," short-term financing. In return, Woodbridge allegedly promised to pay investors 5% to 10% interest annually, according to the SEC.
As
InvestmentNews
reported soon after, a network of unlicensed securities salesman, some of whom had been brokers but had been barred or left the business, were instrumental in selling the Woodbridge real estate scheme.
In January, The Woodbridge Group of Companies reached a deal with the government to appoint a new board and to pay for legal representation for thousands of alleged victims,
according to Reuters.
One of the most striking aspects of the alleged fraud was that it operated in plain sight. On behalf of Woodbridge, hundreds of insurance agents and brokers sold notes supposedly backed by mortgages. They advertised in newspapers and on the internet, touting dinners as educational seminars for retirees to learn about Woodbridge.
Since February, Colorado Securities Commissioner Gerald Rome issued a series of cease-and-desist orders against seven individual unlicensed salesmen. But at least two, Ronald E. Caskey and David Allen Bjorklund, continue to represent themselves on the internet as financial professionals, making no disclosure regarding sales of the defunct Woodbridge notes and not describing Colorado's recent sanctions.
Mr. Caskey's
website is misguided, misleading and makes no mention of any recent problems he had as a seller of unregistered securities.
The site touts "safe money retirement planning," as well as "guaranteed 10% a year growth for 10 years!" How is the promise of retirement planning not an offer of investment advice?
"Dr. Caskey has over 30 years' experience as a trusted financial professional," according to the website. "Over the past three decades, he has helped scores of valued clients create, protect, and distribute wealth in an effort to greatly enhance their overall quality of life."
Mr. Caskey, who continues to hold a license to sell insurance, according to a Colorado Department of Regulatory Agencies
website, did not comment when I called him Wednesday. At the bottom of his website, in small print, it discloses that the "guarantees are backed by the financial strength and claims-paying ability of the issuing company" and so-called "bonus annuities."
Similarly, Mr. Bjorklund continues to hold a license to sell insurance in Colorado, according to the same Colorado website.
Late Wednesday, his profile had been taken down from the website of his firm,
Strategic Financial Partners. Earlier in the day, his profile stated that he was "a life insurance and annuity specialist with over 30 years of experience. His expertise is in helping his clients create secured and tax-advantaged retirement income."
Creating retirement income sounds like an offer of investment advice.
Mr. Bjorklund did not return a call to comment. The CEO of Strategic Financial Partners, John Ferguson, also did not return a call to comment.
"The Division of Securities monitors and follows up on all cease and desist orders, and if we come to a conclusion that there has been further violation of the Colorado Securities Act we will take appropriate action," Mr. Rome said in an email. "When it comes to the sale of other financial products that are not securities, we have to look closely at the context of the marketing and determine if a person is providing advice with respect to securities."
Vincent Plymell, a spokesman for the Colorado Division of Insurance, did not return calls to comment.
"The ability to get an insurance license and hold yourself out as a wealth manager is big problem," said Scott Silver, a plaintiff's lawyer in Florida who represents a number of investors who bought the Woodbridge notes. "The clients don't appreciate the simple distinction between a [Financial Industry Regulatory Authority Inc.] regulated stockbroker and insurance agents selling fixed annuities and putting up websites claiming to be wealth managers."
"The average clients assume the adviser was registered with the proper authorities," Mr. Silver said. "Some of the unlicensed advisers selling Woodbridge notes ran ads in the local papers as wealth managers. Where were the regulators?"
The financial advice industry, securities and insurance regulators, large and small firms, and advisers have done a lousy job of keeping tabs of salesmen who slip through the cracks and potentially could harm clients, particularly the elderly.
Securities regulators are quick to note that if an agent is selling an annuity, it's not their problem.
That's called passing the buck.
The fact that unlicensed salesmen sanctioned in Colorado keep hyping tarnished credentials to promote investment advice clearly shows the extent of the problem. The financial advice industry must do more to address this dilemma. If it doesn't, more consumers will suffer.
