The Financial Industry Regulatory Authority has suspended and fined a former LPL Financial broker for soliciting investors to purchase an unauthorized variable life insurance policy.
According to a letter of acceptance, waiver and consent issued by FINRA, Scott P. Klor was affiliated with LPL Financial LLC for six years, between March 2011 and April 2017, prior to being terminated for allegedly violating the firm’s policies against participating in certain private securities transactions without written consent, considered a violation of FINRA Rule 2010.
The complaint contends that without notifying LPL, Klor solicited investors to purchase a variable life insurance policy on the life of an elderly individual with a terminal illness. FINRA alleges that, with Klor’s assistance, the investors formed an LLC to purchase the policy for approximately $1.4 million.
For his participation in this private securities transaction, known as a viatical settlement, he received a 4 percent interest in the LLC, which he requested be placed in his wife’s name. It was structured so investors would purchase the life insurance policy for an amount that exceeded its surrender value and less than the expected death benefit.
FINRA also alleges that seven individuals joined the LLC, yet only five made monetary contributions, two of which were LPL customers. These five individuals collectively owned 90 percent of the LLC and guaranteed a $2 million loan to purchase the policy and make future premium payments. The managing member of the LLC was a bank executive who engaged Klor as an independent contractor.
The LLC made quarterly premium payments on the policy and interest payments on the loan for several years while the insured was alive. When the insured passed away in August 2017, the death benefit on the policy was worth less than the total amount invested, and each of the LLC’s five majority members lost more than $200,000.
FINRA has suspended Klor from associating with any FINRA member in any capacity for a period of 14 months and issued a $5,000 fine. He has accepted and signed the AWC letter without admitting or denying the findings.