Minnesota Dept. of Commerce Investigating Agents

The Minnesota Department of Commerce has become aware of companies and individuals targeting insurance agents to participate in the sale of non-insurance products with the guarantee of high commissions ranging from 11 percent to 13 percent.

The Department has recently investigated a number of cases involving insurance agents who offered or sold a variety of investment instruments that fall within the definition of a security. The insurance agents involved were not licensed as securities agents and the instruments were not registered with the Department as required by Minnesota law. The types of unregistered investment instruments being sold by some insurance agents to Minnesota residents include but are not limited to promissory notes, customer-owned coin-operated telephones (“COCOTS”), viatical settlement contracts, senior settlements, universal lease programs, accounts receivable financing, and other alternative investment products.

Most of those instruments fall within the definition of a security and are governed by the securities laws and regulations pertaining to the sale and/or marketing of securities products. The Department has indicated that it intends to pursue administrative sanctions against the license of any insurance agent who participates in the illegal offer or sale of those unregistered, non-exempt products or who engages in the sale of registered or exempt securities without first becoming licensed as a securities agent.

While many promoters claim that these investments are exempt from registration or that the product is “not a security” they clearly meet the definition of a “security”. The companies soliciting unsuspecting insurance agents, frequently fail to advise them of their need for a securities agents license or that they will be subject to the fraud provisions of the securities laws. Further, the promoters of these products often require that all parties must keep the transactions strictly confidential and may require agents and investors to sign nondisclosure agreements.

Insurance agents who engage in the sale of securities without first obtaining the appropriate license or who have a securities license but engage in the sale of unregistered/nonexempt products will face civil penalties, loss of licensure and possible criminal prosecution.

The Department is also aware that some insurance agents are marketing these products to their current clients and advising the client take loans against insurance policies, cancel policies or redeem other assets to invest in these extremely risky, illegal products.

According to the Department, such conduct will be deemed a deceptive practice resulting in disciplinary sanctions imposed against an agent’s insurance license pursuant to which may include a fine of up to $10,000 per violation, license revocation and a referral for criminal prosecution.

Topics Agencies Minnesota