Scott Patrick Klor of Fort Mill South Carolina a stockstockbroker formerly registered with LPL Financial LLC has been fined $5,000.00 and suspended for fourteen months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to findings that he engaged in securities transactions away from LPL Financial LLC and failed to inform the firm about his activities. Letter of Acceptance Waiver and Consent No. 2017054221601 (Apr. 4, 2019).
According to the AWC, customers of the firm and other non-firm investors had been steered by Klor towards making purchases of a variable life insurance policy. Apparently, the policy was based on an elderly individual’s life, and the individual had a terminable condition. Eventually, a viatical settlement had been structured, where the life insurance policy had been purchased by the investors for an amount in between the death benefit of the policy and the cash surrender value.
Evidently, Klor and other investors created an LLC so that a $1,400,000.00 life insurance policy could be purchased. The AWC stated that investors were in touch with Klor concerning the transaction, as Klor presented the investment opportunity to the investors and discussed the LLC’s formation with professionals. Supposedly, Klor even corresponded with investors about the viatical settlement utilizing the firm’s communication mediums. The AWC stated that Klor was ultimately compensated for his services, indirectly receiving a four percent stake in the company.
The AWC stated that a $2,000,000.00 loan had been procured collectively by two of the firm’s customers and three other individuals. Evidently, the loan was utilized to buy the policy and to make the future premium payments. Evidently, the policy remained in force for multiple years because the premium payments were made by the LLC. However, investors sustained a collective $200,000.00 loss on the arrangement when the insured died in 2017 because the total amount that the investors contributed was worth more than the policy’s death benefit.
The policies of LPL Financial reportedly allowed stockbrokers to engage in some securities transactions away from the firm but those transactions required the stockbrokers to make the firm aware of the transactions and get the firm’s permission beforehand. Moreover, the AWC stated that the firm’s procedures disallowed stockbrokers from engaging in any viatical or life settlements with customers or other investors. Apparently, the firm was not provided information from Klor about Klor’s involvement in the viatical settlement or the arrangement he had with other investors specifically concerning the pooling of their funds for the joint venture. Consequently, FINRA found that Klor’s conduct was violative of FINRA Rule 2010 and NASD Rule 3040.
FINRA Public Disclosure further reveals that Klor was terminated from LPL Financial LLC on April 20, 2017 based upon allegations that Klor sold away from the firm; conduct violative of LPL Financial’s policy.
