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Class actions regarding Ponzi schemes, lawsuits alleging the mistreatment of departing advisors and investigations into pandemic economic relief fraud are among the most recent legal battles in the financial industry.
In June, Wells Fargo was dragged into Ponzi scheme litigation over its alleged failure to detect an insurance scam believed to have cost more than 1,000 victims hundreds of millions in losses. The suit accuses the alleged scammers of borrowing money from their victims through the sale of promissory notes, legally binding documents often giving their holders a guarantee of being paid by a certain date. The money needed for repayment was to come from the Seeman Holtz affiliates' substantial holdings in special insurance products known as "stranger-originated life insurance."
These products, called STOLIs for short, result from life insurance holders wanting to cash in on their policies before they die. The insured, who are often elderly, do that by selling their policies to a third-party firm like one of Seeman Holtz's affiliates. That third party then becomes responsible for paying the premiums but also gets to collect the death benefits when the original holder dies.
Wells Fargo, according to the suit, was in a position to catch all of this. Wells, for instance, should have known from its "insider roles" as trustee and securities intermediary that the STOLIs used in the alleged scheme were, in fact, not being held, as promised, as collateral with third-party agents. The suit also states Wells "must have known" that the promissory notes being sold by the alleged perpetrators were not registered and that the people offering them were not licensed.
"The success or failure of the complaint will rest on the plaintiffs' ability to demonstrate by a preponderance of the evidence that Wells Fargo had a duty to monitor the transactions and, further, had a duty to alert the victims of any improper conduct," Bill Singer, a longtime securities lawyer and recently retired author of the Broke and Broker blog told Financial Planning's Dan Shaw. "That's a lot of dots to connect."
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Separately, LPL and a recently recruited father-son advisory team are accusing Ameriprise of intimidation tactics meant to make other wealth managers think twice before leaving for other firms.
"Ameriprise's intransigence reveals this action for what it is: a truly cynical attempt on Ameriprise's part to intimidate other of its advisors who might consider leaving to join another firm, and hinder competition in the financial services space," LPL said in response to the lawsuit. "Rather than investing its time and resources into improving its business model such that accomplished advisors like the McCanns don't feel the need to take their business elsewhere, Ameriprise would rather continue its pattern of suing advisors who leave without any reasonable basis to think these advisors have done anything wrong."
A spokesperson for Ameriprise said, "The facts of this case are clear. These advisors violated the protocol for broker recruiting among other industry standards and rules. We look forward to the judge's ruling on LPL's involvement in these violations."
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More than four years since the start of the COVID-19 pandemic, the Internal Revenue Service is investigating money-laundering and fraud cases related to pandemic relief programs, with some receiving sentences of 10 years in prison.
"The work by IRS Criminal Investigation plays a vital role in protecting against fraud and serves a key part in the agency's wider efforts to ensure fairness in the nation's tax system," IRS Commissioner Danny Werfel said in a statement. "A healthy budget for the IRS helps us get the job done."
Read more about recent legal cases in the financial industry below.
