October 12, 1999 -
Banking and Insurance Departments Issue Joint Warning
To Local Insurance Agents and Investors
Banking Commissioner John P. Burke and Insurance Commissioner George M. Reider, Jr. today warned local insurance agents about fraudulent schemes involving the marketing of promissory notes and commercial paper.
Burke said his department's Securities and Business Investments Division, over the past several weeks, has received complaints from Connecticut residents involving over $2 million invested in promissory notes and commercial paper, often sold through insurance agents. Most of the complaints received center on products promoted by two Florida-based companies, Sebastian International Enterprises, Inc. and World Vision Entertainment, Inc., which are under scrutiny by federal and state securities regulators.
According to Burke and Reider, it appears that these companies duped local insurance agents into marketing their investments by falsely telling the agents that the products were not securities and that the investments were fully backed by foreign surety companies. Although the surety companies have credible-sounding names, they appear to be questionable enterprises. Burke said his agency considers products like those marketed from the two companies to be securities, and he said insurance agents who sold the notes, unless they were registered as agents of an issuer with his department, violated Connecticut's securities laws. Such activity would subject the agents to possible administrative and criminal sanctions and further expose them to civil liability from investors.
In August 1999, the federal Securities and Exchange Commission obtained a court order to halt the sale of securities by Sebastian International Enterprises and placed the company in receivership. The SEC alleged that Sebastian, rather than devoting sales proceeds as purported to create children's television programming, illegally used investor funds to make Ponzi-type payments to other investors while its principals enjoyed a lavish lifestyle including luxury cruises and private jet travel. World Vision Entertainment filed for Chapter 11 bankruptcy in mid-September.
Despite a halt in the activity of these two firms, state officials fear that other promoters may approach Connecticut insurance agents with similar schemes. Burke and Reider urged salespeople to immediately contact the Department of Banking, Securities Division if they are approached by entities to sell "high yield, low risk" investments. The Securities Division may be reached at (860) 240-8230 or 1-800-831-7225.
Investors who purchased investment products from Sebastian International and World Vision should contact the Department of Banking. Burke urged investors to always check with his agency before investing to be sure investment opportunities and their sellers are registered with the Securities Division.
[For additional information, you may wish to visit the Insurance Department Web site.]