A Wall Street Journal review revealed that when FINRA disciplines a broker for misconduct, the admonished registrant is sometimes able to retain his or her insurance license, even if the broker's penalty was banishment from the securities industry.
This is because FINRA's penalty of a permanent bar is a termination of the broker's registration with securities firms and agencies and does not carry over to the insurance world.
Through 2014, FINRA sent monthly reports of disciplinary actions taken against securities brokers and other registered individuals to state securities regulators, whom often did not share these reports with their insurance department counterparts, effectively allowing for a situation in which a FINRA-barred broker retains his or her insurance license.
To address this discrepancy, FINRA announced that beginning in 2015, it will provide to state insurance regulators a monthly report of disciplinary actions taken against securities brokers.
The WSJ report documents the case of one elderly customer who purchased an insurance policy from one such insurance salesperson who had, in fact, been under FINRA investigation for securities fraud.
According to the Journal's story, broker Lynn A. Simon additionally solicited and received $115,000 from this customer for a side investment that account statements showed purported interest earnings of nearly 12%.
Less than three years later, the entire $115,000 principal vanished as Simon pled guilty to securities fraud, was ordered to pay $1.4 million in restitution to the elderly client and other victims of related frauds, and received a two-year prison sentence.
Investigation into similar tales across the United States turned up FINRA and securities-initiated charges of identity theft, opening bank accounts without consent or permission, selling unregistered securities and misappropriation of customer funds: all actions that, through 2014, were either not shared with or not acted expediently upon by insurance departments.
The state of California previously announced that its insurance department has begun retrieving FINRA's monthly disciplinary reports to note actions taken against brokers who happen to also hold state insurance licenses.
Because state insurance databases may not return a particular agent or salesperson's securities industry history—and vice versa—potential insurance customers may be wise to consult FINRA's public BrokerCheck database to research such investment or insurance professionals and determine whether a troublesome disciplinary history exists.
If you have invested with a broker or financial advisor whose simultaneous possession of an insurance license has enabled or encouraged the execution of harmful securities transactions that have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.