Securities Industry Commentator by Bill Singer Esq

September 4, 2019

FINRA Arbitrator Orders Expungement of Customer Complaint Arising From Disputed Life Insurance Proceeds Amid Divorce Followed by Ex-Husband's Death. In the Matter of the Arbitration Between Wesley J. Cumbie, Claimant, v. MML Investor Services, LLC, Respondent (FINRA Arbitration Decision 19-00318)
In a FINRA Arbitration Statement of Claim filed in January 2019, associated person Claimant Cumbie sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). Respondent MML Investor Services did not oppose the request. The customer could not be located and, as such, did not participate in the hearing. The sole FINRA Arbitrator recommended expungement after making a FINRA Rule 2080 finding that the customer's The claim, allegation, or information is factually impossible or clearly erroneous, and false. The Arbitrator offered a compelling rationale:

This Complaint involved a term life insurance policy purchased by the Customer's husband in 1995 for the benefit of the Customer. Several months after the Customer's husband purchased this policy, he and the Customer divorced. At the time of the divorce, the Customer's husband was a client of Claimant, but the Customer was not his client. After the divorce, Claimant asked the Customer's husband if he wanted to change the beneficiary of his life insurance policy. The Customer's husband said that he wanted to keep the Customer as the primary beneficiary. 

In 1996, the Customer's husband passed away. After his death, the Customer filed for the insurance proceeds, but a dispute arose regarding the proper beneficiary of the policy. As a result, Respondent filed an interpleader action and deposited the life insurance proceeds into an escrow account to allow the Court to decide who was entitled to the proceeds. 

On appeal, the Texas Appellate Court held that the insurance proceeds belonged to the Customer's husband's estate, rather than to the Customer. As a result, the Customer filed a lawsuit against Respondent and Claimant alleging that Texas law required the redesignation of a spouse as the beneficiary of a life insurance policy subsequent to a divorce unless the former spouse was redesignated as the beneficiary in a marital settlement agreement. The Customer and her husband's marital settlement agreement did not address the issue. Subsequently, the Customer's lawsuit against the Claimant and Respondent was settled by the Respondent's paying the Customer.Claimant did not contribute to the settlement. 

It is noted that Claimant is not an attorney and had nothing to do with the divorce proceedings between the Customer and her husband and was not privy to the marital settlement agreement entered into by them. Their divorce attorneys are the ones who should have handled any beneficiary redesignation regarding this policy. In addition, the term insurance policy is not investment related nor does the Customer's complaint address a sales practice violation. Rather, it is a complaint involving an insurance policy- not a security. And finally, the Customer was not a client of Claimant. She was the former wife of a client. . .

FBI Launches Sextortion Awareness Campaign in Schools / Youth Should Be On Guard Online (FBI Release)
As the new school year begins, the FBI is seeking to inform students about sextortion so they know how to avoid risky situations online and to ask for help if they are being victimized. 

Notice from the FBI: Understand Sextortion and How Your Child Could be at Risk 

The FBI is seeing an alarming increase in cases that involve adults coercing children into producing sexual images and videos online, a crime called sextortion.  

These predators have developed tactics that allow them to exploit children through their connected devices within their own homes.  

The FBI has provided posters to your school to help raise awareness of this crime. Take a moment to learn how sextortion works and how to talk to your children about it. Information, resources, and conversation guides are available at
Kelly Custer pled guilty in the United States District Court for the Northern District of Indiana to conspiracy to commit wire fraud, and she was sentenced to 63 months in prison plus 2 years of supervised release; and she was ordered to pay $1,463,437.50 in restitution. As set forth in part in the DOJ Release:

[O]n March 19, 2015, a victim couple reported to law enforcement that they were being extorted by the mafia.  The victims provided information detailing an extortion scheme that started in 2007 when they lived in Fort Wayne and continued after their move to Florida.

According to the victims, the extortion began after they were informed by Kelly Custer that she and her family faced death threats from the mafia and she needed help paying them off to protect herself and her family.  The scheme then evolved when Kelly Custer then convinced the victims that their lives, their friends' and families' lives as well as her life would be in jeopardy if they did not pay the debt to the mafia.  The victims initially received all the information concerning the extortion through Kelly Custer, in that she relayed the threats and demands to them personally.   After the victims moved to Florida, however the threats from Kelly Custer continued in the form of text messages, causing the victims to fear the messages came from actual mafia members.  In February of 2015, the victims were informed that Kelly Custer had been killed as a result of problems she had with the mafia; however they continued to receive threatening text messages from Kelly Custer's phone by persons identifying themselves as members of the mafia.

The victims made the demanded payments primarily to Kelly Custer, but also directed payments to three other co-defendants, Kelly Custer's children, on numerous occasions as instructed in the threatening text messages.  The victims reported that in response to the threatening communications, they had paid "the mafia" approximately 1.5 million dollars over the past seven years, and approximately $250,000-$300,000 dollars since moving to Florida.  According to the victims, in response to threats they usually paid between $3,000 and $10,000 at a time and on at least one occasion they paid $50,000 after receiving a threatening message indicating that, if they did not make that payment, a friend's daughter would be killed.  

Co-defendants William Custer, Jr., Ashley Custer, and Sidney Custer were previously sentenced following their pleas of guilty to conspiracy to commit wire fraud, and each was ordered to repay restitution to the victims in the amounts of $119,127.99; $118,583.16;  and  $14,399.78  respectively.
When it comes to regulatory documents, I'm a stickler for saying what you mean and meaning what you say. When I've finished reading a disciplinary decision or settlement agreement, it shouldn't end with a guessing game. I should understand the fact pattern. I should be persuaded by the rationale for sanctions. I should feel that justice was served by the end result. A recent FINRA regulatory settlement comes up short on a number of those aspects.
NOTICE: Aegis Frumento Esq will be returning as a Guest Blogger to the Blog on Thursdays, starting with September 5, 2019. Catch his new [In]securities column.

SEC Charges Attorney with Role in Investment Schemes (SEC Release)
In a Complaint filed in the United States District Court for the Northern District of Georgia, the SEC charged former FBI Agent and lawyer Jayat P. Kanetkar and his company Guaranteed Investigations, Inc. with aiding and abetting primary violations of the antifraud provisions of Section 17(a) of the Securities Act  and Section 10(b) of the Securities Exchange Act  and Rule 10b-5 thereunder. Withoiut admitting or denying the allegations in the Complaint, Kanetkar and Guaranteed agreed to settle the charges and consented to the issuance of final judgments permanently enjoining them from future violations of the charged antifraud provisions, and ordering them to pay disgorgement of $14,135 and prejudgment interest of $2,711, and ordering Kanetkar to pay a civil penalty of $25,000. Further, Kanetkar agreed to settle an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an attorney. As set forth in part in the SEC Release:

[F]from 2013 through 2016, Jayat P. Kanetkar ("Kanetkar") and his company, Guaranteed Investigations, Inc. ("Guaranteed"), aided and abetted a prime bank scheme orchestrated by Peter Baker of Lawrenceville, Georgia, and Elizabeth Oharriz of Miami Shores, Florida, and a real estate investment scheme orchestrated by Russell Craig of Atlanta, Georgia. The complaint alleges that Kanetkar, who acted as the escrow agent for each transaction, aided and abetted these fraudulent schemes by acting in contravention of written escrow agreements and by accepting and disbursing investor funds when he knew, or was reckless in not knowing, that the transactions were fraudulent.
In an Indictment filed in the United States District Court for the Western District of North Carolina, Michael Filipidis was charged with wire fraud and aggravated identity theft charges. As set forth in part in the DOJ Release:

[B]eginning in or about December 2018, Filipidis engaged in a scheme to defraud an elderly individual, by falsely representing to the victim that Filipidis was a financial advisor with a financial institution, and that he could manage and invest the victim's monies.  Filipidis was employed by the financial institution, but worked at a call center.  The indictment alleges that, based on Filipidis's fraudulent claims, the victim provided Filipidis with access to the victim's financial accounts, and authorized Filipidis to transfer funds to new brokerage accounts.  Filipidis then fraudulently diverted funds from the victim's new brokerage accounts, as well as from the victim's life insurance annuities and the victim's other bank accounts, to bank accounts under Filipdis's control.  Filipidis then used and attempted to use the victim's funds for Filipidis's personal benefit. 

According to allegations in the indictment, in order to carry out the scheme, when Filipidis opened the new brokerage accounts he used his own phone number and email address for the contact information.  He also named himself the beneficiary of one of the new brokerage accounts without the knowledge and consent of the victim. Further, Filipidis fraudulently changed the mailing address, email address, and phone number associated with the victim's bank accounts at the financial institution to Filipidis's personal information, so the victim stopped receiving phone calls, correspondence, and statements for his bank accounts.

The indictment alleges that between December 2018 and February 2019, Filipidis diverted more than $800,000 of the victim's funds, intended for Filipdis's own benefit.