A recent development is a signal NAIC has taken it regulatory reach to a new level.
By Robert Dixon
A Financial Industry Regulatory Authority (FINRA) arbitration panel ordered Deutsche Bank Securities and a former advisor to pay two investors and their trusts a total of $934,000, the regulatory agency has announced. The former advisor, Karl Hahn, allegedly swindled the investors in a multimillion-dollar life insurance deal, Reuters reported.
Hahn was permanently banned from the securities industry last year after a number of complaints and a settlement in the same case before New Hampshire officials. The advisor worked for Deutsche Bank's private wealth management division, a unit of Deutsche Bank AG, from 2008 to 2009. Hahn left Deutsche Bank to work for Oppenheimer & Co. in 2009; he began his career at Merrill Lynch Pierce Fenner & Smith from 2004 to 2008, according to a consent order filed by the New Hampshire Bureau of Securities in October 2011. That order permanently banned Hahn from selling securities in the state.
Investors Susan and Michael Myers filed the case in 2011, alleging civil fraud and negligent supervision of Hahn, among other misdeeds, according to the ruling.
The case involved their purchase of a risky type of life insurance in which policyholders finance premiums with loans typically tied to variable interest rates. The Nevada couple initially sought $2.2 million in compensatory damages and more than $13 million in punitive damages.
Hahn went to great lengths to convince the Myerses to invest some $1.9 million in a deal conducted outside of Deutsche Bank, where he worked as an advisor and handled investments for the couple. According the New Hampshire documents, he advised the Meyrses not to tell anyone at Deutsche Bank or other investors about the deal. He also did not tell them that a significant portion of the investment – some $600,00 – would be paid to Hahn's father as his father’s share of the commission from the investment, reportedly made through a third-party insurance agent who was not associated with Deutsche Bank.
Deutsche Bank is facing other litigation stemming from Hahn's alleged conduct.
Hahn did not tell the couple that his father would receive a "significant" commission from the sale of the life insurance policy—an arrangement that could have prompted his recommendation, according to a complaint in a separate court case stemming from the transaction.
David Thomas, a San Francisco-based lawyer for the Myerses, told Reuters the ruling includes $834,000 in damages and $100,000 in legal fees. His clients believed Deutsche Bank and Hahn were to blame for the life insurance transactions, which caused "substantial losses," he told the news service.
Hahn’s legal troubles may not be over yet. Deutsche Bank won a $2.55 million federal court judgment against him last year, the result of an unearned portion of a $2.8 million re received when he joined the bank. Such signing bonuses are structured as loans that are forgiven over time, typically within seven to 10 years.
The FINRA panel also dismissed a claim the Myerses filed against Oppenheimer & Co., where Hahn worked after Deutsche Bank, according to Reuters.
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