Finra Fines and Suspends Ex-LPL Broker Over Viatical Settlement
Self-regulator Finra has suspended a 22-year veteran of the financial services industry who had been discharged by LPL Financial for failing to notify the firm about a private securities transaction structured as a viatical settlement, the industry organization says.
Between September and December 2012, Scott Klor allegedly solicited investors, some of whom were LPL customers, to buy a variable life insurance policy on the life of an elderly person with a terminal illness, structuring the instrument as a viatical settlement, according to a letter of acceptance, waiver and consent published by Finra.
In such setups, investors buy the policy for an amount exceeding its surrender value but less than its expected death benefit, the regulator says.
The investors allegedly set up an LLC to buy the policy for $1.4 million, with Klor allegedly getting a 4% stake for his help setting up the transaction, which included assisting in sales presentations, consulting professionals and communicating with investors about the transaction using his LPL email account, according to Finra.
Klor requested that the 4% interest in the LLC be put in his wife’s name, the regulator says.
In addition to Klor’s wife, the LLC allegedly had seven members, with five of them making monetary investments, including two who were LPL customers, according to the consent order.
The five investors allegedly personally guaranteed a $2 million loan used by the LLC to buy the policy and make premium payments on it, Finra says. Furthermore, the LLC’s managing director allegedly worked at a bank that Finra doesn’t name, where Klor was an independent contractor, according to the regulator.
The LLC made quarterly premium payments and loan interest payments for several years after it was set up, Finra says.
By early 2015, Klor’s wife allegedly no longer had an ownership stake in the LLC, according to the letter of consent. And when the terminally-ill individual died in August 2017, the death benefit fell short of the original amount invested in the policy and the five members of the LLC who had monetary stakes in it lost more than $200,000 each, Finra says.
While LPL allowed its registered representatives to participate in certain private transactions with prior written notice and approval, the company nonetheless barred its representatives from participating in the offering of life or viatical statements, according to the letter of consent.
Klor allegedly never told LPL about the viatical settlement and from 2013 through 2016 provided inaccurate responses on the firm’s questionnaires about such transactions, Finra says.
LPL discharged Klor in April 2017 over allegations of violations of its policy on private securities transactions, according to his BrokerCheck profile.
On April 4, Finra suspended Klor for 14 months and ordered him to pay a $5,000 fine, according to the letter of consent. Klor consented to the order without admitting or denying the regulator’s findings, Finra says.