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BANKERS LIFE AND
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I. PRELIMINARY STATEMENT
II. FINDINGS OF FACT
|1.||Bankers Life is a life insurance company located in Illinois that has never been registered as a broker-dealer or investment adviser.|
BLCFS is a wholly-owned subsidiary of Bankers Life that also is located in Illinois. BLCFS has been a member of NASD or FINRA since 2003 and is registered as a broker-dealer only in Illinois. During its existence, BLCFS has had no business activity other than as described herein. BLCFS has never been registered as a broker-dealer or investment adviser in Connecticut, and it has not registered any agents or investment adviser agents in Connecticut.
|4.||The UVEST Agreement provided for UVEST to pay Bankers Life “Revenue Sharing Payments” according to a schedule that varied from 82% to 85% of the gross commissions received by UVEST for the dual agents’ securities transactions. The UVEST Agreement characterized these payments as representing reimbursement for the compensation Bankers Life pays to the dual agents and “payment for the use of the facilities and equipment” of Bankers Life.|
|5.||In March of 2005, Bankers Life determined that BLCFS should have been a party to the UVEST Agreement. As a result, the three firms agreed to a new first page of the UVEST Agreement that added BLCFS as a party and a new signature page, which was executed by the three parties. The revised UVEST Agreement did not assign BLCFS any rights or duties separate from those of Bankers Life and made all of Bankers Life’s rights and duties also apply to BLCFS.|
|6.||Coincident with Bankers and UVEST terminating the UVEST Agreement, Bankers Life and BLCFS entered into a similar agreement with ProEquities, Inc. (“ProEquities) effective April 30, 2010 (the “ProEquities Agreement”). At all relevant times, ProEquities has been a broker-dealer registered in Connecticut and (through an affiliate) a federally covered investment adviser. The ProEquities Agreement specified that ProEquities would “exercise exclusive control” over the broker-dealer and investment advisory activities of the dual agents, and assigned the following securities-related roles to BLCFS or to BLCFS and Bankers Life, roles in which BLCFS and Bankers Life subsequently engaged:|
|7.||Under the ProEquities Agreement, ProEquities was required to pay BLCFS between 87% and 91% of revenue received by ProEquities for the securities business conducted by the dual agents. ProEquities also was required to provide reports to BLCFS of the amount of compensation to be paid to each dual agent for securities work, and BLCFS was to retain the difference.|
BLCFS, in its current Form BD filing, lists the following as other business:
|9.||The involvement of Bankers in securities-related roles led to confusion in the reporting and responsibility hierarchies as between Bankers and the applicable broker-dealer.|
|10.||At no time were the dual agents licensed as agents or investment adviser representatives of Bankers Life or BLCFS. The agents were registered representatives and investment adviser representatives of UVEST or ProEquities.|
|11.||From January 1, 2005, through November 31, 2011, Bankers received, on a nationwide basis, a total of approximately $21 million from UVEST and ProEquities under their respective agreements for variable annuity and securities transactions and investment advice. Approximately $15 million of this amount was passed on by Bankers to the dual agents as compensation, leaving approximately $6 million retained by Bankers or used by Bankers for expenses.|
III. CONCLUSIONS OF LAW
Under Section 36b-6(a) of the Act, a person may not transact business as a broker-dealer in Connecticut unless registered.
Similarly, under Section 36b-6(c) of the Act, a person may not transact business as an investment adviser in Connecticut unless registered or exempt from registration.
|3.||Section 36b-6(b) of the Act prohibits a broker-dealer from employing an agent unless that agent is registered under the Act or an associated person who represents a broker-dealer in effecting transactions described in subdivisions (2) and (3) of Section 15(h) of the Securities Exchange Act of 1934.|
|4.||Section 36b-6(c)(3) of the Act prohibits an investment adviser from engaging an investment adviser agent unless such investment adviser agent is registered under the Act.|
|5.||By engaging in the conduct set forth above, Bankers transacted business as a broker-dealer and as an investment adviser absent registration in Connecticut in violation of Sections 36b-6(a) and 36b-6(c) of the Act.|
|6.||Furthermore, by employing or engaging dual agents who were not registered in Connecticut as agents or investment adviser agents of Bankers, Bankers violated Sections 36b-6(b) and 36b-6(c)(3) of the Act.|
|7.||As a result, the entry of this Consent Order is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act.|
IV. CONSENT ORDER
On the basis of the Findings of Fact, Conclusions of Law, and the consent of the Respondents to the entry of this Consent Order,
IT IS HEREBY ORDERED THAT:
Bankers shall CEASE AND DESIST from (1) transacting business as a broker-dealer or investment adviser in Connecticut unless and until registered to do so; (2) employing or engaging agents or investment adviser agents in Connecticut unless such individuals are registered under the Act as agents or investment adviser agents of Bankers; and (3) otherwise violating the Act; provided, however, that nothing in this Consent Order shall prevent Bankers from employing or engaging insurance producers who are also registered under the Act as broker-dealer agents or investment adviser agents of a Connecticut-registered broker-dealer so long as all securities-related functions are carried out consistently with the conditions set forth below.
In accordance with the terms of the multistate settlement, Bankers Life and/or BLCFS shall pay $9.9 million to be distributed among the states where dual agents were located during the period from January 1, 2005, through December 2, 2011. Within ten (10) business days following the entry of this Consent Order by the Commissioner, Bankers shall pay to the “Treasurer, State of Connecticut”, by electronic funds transfer or wire transfer, the sum of Nine Hundred Sixty Five Thousand Four Hundred Sixty Nine and 30/100 Dollars ($965,469.30) as an administrative fine, which amount constitutes Connecticut’s proportionate share of the total state settlement amount of $9.9 million.
Bankers Life and/or BLCFS shall pay past licensing and registration fees totaling $260,000 to the states where dual agents were located during the period from January 1, 2005, through December 2, 2011. Within ten (10) business days following the entry of this Consent Order by the Commissioner, Bankers shall pay to the “Treasurer, State of Connecticut” by electronic funds transfer or wire transfer, the sum of Five Thousand Dollars ($5,000) representing licensing fee reimbursement due to Connecticut under the multistate settlement.
Bankers Life and/or BLCFS shall pay One Hundred Six Thousand Dollars ($106,000) to fund state audits to ensure compliance with this Consent Order and similar orders, decrees, and agreements in other states. Bankers Life and/or BLCFS shall pay the expenses associated with one or more examinations to be conducted by the Division within twenty four (24) months following the Commissioner’s entry of this Consent Order. Such expenses shall be in accordance with state travel regulations, and shall not exceed two thousand dollars ($2,000) in the aggregate, which amount represents Connecticut’s share of the $106,000 audit allocation pursuant to the multistate settlement.
Bankers shall contract with an independent third party, with disclosure of any prior relationship to Bankers and with a scope of work not unacceptable to the Securities Administrator for the State of Maine (the Lead State in the multistate investigation) for the purpose of reviewing Bankers’ compliance with the terms of this Consent Order. The independent third party shall submit annual reports of the same, including findings and recommendations, to the Maine Securities Administrator, which report shall be delivered on or before September 30th of each year commencing with the September 30, 2012 report and ending with the September 30, 2014 report. Bankers shall make no claim of privilege or other protection from disclosure to the Maine Securities Administrator with respect to the reports or any information received or considered by the independent third party, and Bankers shall not take any action to prevent or impede the Maine Securities Administrator from sharing the reports or information with other state securities regulators, including the Commissioner.
If any state securities regulator determines not to accept the settlement offer of Bankers reflected herein, the monetary payments to Connecticut hereunder shall not be affected, and Bankers shall not be relieved of any of the non-monetary provisions of this Consent Order.
|7.||Bankers shall not attempt to recover any part of the payments described in this Consent Order from dual agents, UVEST, ProEquities, or customers of Bankers (including through premium increases); provided, however, that nothing in this Consent Order prohibits Bankers from modifying its premiums or expenses for reason(s) unrelated to the payments referenced herein.|
|8.||Bankers shall fully cooperate with any investigation or proceeding related to the subject matter of this Consent Order.|
|9.||Bankers has an existing relationship with ProEquities, a third party licensed broker-dealer. From the date of this Consent Order through March 31, 2015 and while Bankers has dual agents that are registered representatives or investment adviser representatives of a third party broker-dealer, any agreement between Bankers and the third party broker-dealer shall be consistent with the provisions set forth below, provided, however, Bankers may seek leave with the applicable securities administrators for relief from this provision:|
|10.||Bankers Life shall comply with the following practices:|
|11.||Pursuant to a Consent Order entered with the Maine Securities Administrator on April 27, 2012, BLCFS made the filings necessary to withdraw its registration as a broker-dealer with the Securities and Exchange Commission and the State of Illinois and terminate its membership with FINRA. BLCFS shall not reapply for such registration or membership.|
|12.||This Consent Order concludes the investigation by the Division and any other action that the Commissioner could commence under the Act on behalf of Connecticut as it relates to the violations described above, up to and including activity occurring through December 2, 2011; provided, however, that excluded from and not covered by this paragraph are any claims by the Commissioner arising from or relating to enforcement of the terms and conditions of this Consent Order.|
|13.||If payments are not made by Bankers Life or BLCFS, or if Bankers defaults in any of its obligations set forth in this Consent Order, the Commissioner may vacate this Consent Order, at the Commissioner’s sole discretion, upon 10 days notice to Bankers and without opportunity for administrative hearing or judicial review.|
|14.||Nothing herein shall preclude the State of Connecticut, its departments, agencies, boards, commissions, authorities, political subdivisions and corporations, other than the Commissioner and only to the extent set forth herein, (collectively, “State Entities”) and the officers, agents or employees of State Entities from asserting any claims, causes of action, or applications for compensatory, nominal and/or punitive damages, administrative, civil, criminal, or injunctive relief against Bankers; provided, however, that this Consent Order shall not be deemed to constrain, estop or preclude Bankers from asserting any legal or factual position, response or defense, provided, however, that Bankers admits the facts set forth in the Findings of Fact contained in paragraphs 1 through 11, inclusive, of Part II of this Consent Order.|
|15.||This Consent Order is not intended by the Commissioner to subject any person to any disqualifications under the laws of the United States, any state, the District of Columbia, Puerto Rico, or the Virgin Islands including, without limitation, any disqualification from relying upon the state or federal registration exemptions or safe harbor provisions.|
|16.||This Consent Order and the order of any other state in related proceedings against Bankers (collectively, the “Orders”) shall not disqualify any person from any business that they otherwise are qualified, licensed or permitted to perform under applicable securities laws of Connecticut, and any disqualifications from relying upon this state’s registration exemptions or safe harbor provisions that arise from the Orders are hereby waived.|
|17.||This Consent Order and any dispute related thereto shall be construed and enforced in accordance with, and governed by, the laws of Connecticut without regard to any choice of law principles.|
|18.||This Consent Order shall be binding upon Bankers, its affiliates, successors and assigns.|
|19.||This Consent Order is entered into solely for the purposes of resolving the referenced multistate investigation, and is not intended to be used for any other purpose. For any person or entity not a party to the Consent Order, this Consent Order does not create any private rights or remedies against Bankers, create liability of Bankers, or limit or preclude any legal or factual positions or defenses of Bankers in response to any claims.|
|20.||Except as set forth above, the Commissioner agrees to take no action adverse to Bankers or its agents based solely on the same conduct addressed in this Consent Order. However, nothing in this Consent Order shall preclude the Commissioner from: (a) taking adverse action based on other conduct; (b) taking this Consent Order and the conduct described above into account in determining the proper resolution of action based on other conduct; (c) taking any and all available steps to enforce this Consent Order; or (d) taking any action against other entities or individuals, regardless of any affiliation or relationship between Bankers and the entities or individuals.|
NOW THEREFORE, the Commissioner enters the following:
|1.||The Findings of Fact, Conclusions of Law and Consent Order set forth above, be and are hereby entered;|
|2.||Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against Respondents as set forth in paragraph 20 of Part IV of this Consent Order; and|
|3.||This Consent Order shall become final when entered.|
|So ordered at Hartford, Connecticut||_______/s/_________|
|this 29th day of June 2012.||Howard F. Pitkin|
CONSENT TO ENTRY OF ORDER
I, William D. Fritts, Jr., state on behalf of Bankers Life and Casualty Company, that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Bankers Life and Casualty Company; that Bankers Life and Casualty Company, agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Bankers Life and Casualty Company voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
|Bankers Life and Casualty Company|
|Name: William D. Fritts, Jr.|
|Title: Senior Vice President|
County of: Hamilton
On this the 25th day of June, 2012, before me, the undersigned officer, personally appeared William D. Fritts, Jr., who acknowledged himself to be the Senior Vice President, Government Relations of Bankers Life and Casualty Company, a corporation, and that he, as such Senior Vice President, Government Relations, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as Senior Vice President, Government Relations.
Date Commission Expires: 4-23-2016
CONSENT TO ENTRY OF ORDER
I, Thomas R. Kaehr, state on behalf of BLC Financial Services, Inc., that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of BLC Financial Services, Inc.; that BLC Financial Services, Inc., agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that BLC Financial Services, Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
|BLC Financial Services, Inc.|
|Name: Thomas R. Kaehr|
County of: Hamilton
On this the 25th day of June, 2012, before me, the undersigned officer, personally appeared Thomas R. Kaehr, who acknowledged himself to be the President of BLC Financial Services, Inc., a corporation, and that he, as such President, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as President.
Date Commission Expires: 1/18/2018