On February 28, 2016, the Massachusetts Division of Insurance became the ninth regulatory agency to revoke insurance and investment advisor licenses issued to Redonda Russell, 68, of Fort Worth, Texas. As required by law, Mrs. Russell failed to report, to the Division, a criminal proceeding against her for wire fraud and administrative actions revoking her nonresident producer licenses as well as FINRA sanctions.
The Division of Insurance Hearing Officer, Jean F. Farrington, entered an Order against Mrs. Russell revoking her insurance licenses in Massachusetts and ordering her to dispose of any interests in the Commonwealth as a proprietor, partner, stockholder, officer, or employee of any licensed insurance producer. Additionally, Hearing Officer Farrington fined Ms. Russell $3,500.00, citing G.L. c. 175 § 194, a statute that allows a $500 fine when a violation of an insurance law occurs, as the statute Mrs. Russell violated does not provide for a specific penalty.
A trusted employee with 22 years of service and access to all the wrong information
First Command Financial Services (“First Command”) sold investments as a broker-dealer and insurance products as an agent for insurance companies. First Command focused its marketing and services on current or former active-duty commissioned and non-commissioned officers in the United States military. Many of First Command’s agents were former military officers themselves.
Redonda Russell worked at First Command for 22 years, from 1991 until 2013. At First Command, she maintained licenses as a registered Investment Advisory Representative, a Broker-Dealer and as an insurance producer. She also earned a Chartered Financial Consultant designation.
In approximately 2007, Mrs. Russell became the associate director of client services at First Command. As a director she had access to confidential information that allowed her to obtain the names, dates of birth, Social Security numbers, addresses, investment and insurance account numbers, account balances, insurance policy cash values, and beneficiary information relating to First Command’s clients.
Through her associate director position, she also became privy to the security checks and anti-fraud procedures that First Command’s insurance and investment companies used to verify the authenticity of investment withdrawals and insurance policy loans requested by First Command’s clients.
Turns to a life of crime at age 65
In 2012, Mrs. Russell, about to turn 65, began to get itchy with the wealth of sensitive information available to her. Ultimately, she decided to misapproriate that information by deciding to create and fund a retirement plan for herself, at the expense of First Command’s most vulnerable clients.
Many of the companies that First Command used for client investments, annuities, and insurance required clients wishing to make changes. These changes often resulted in money being withdrawn from their investments, annuities, or loaned from their insurance policies. These withdrawals also often required that the client appear before a representative of First Command in order to provide photo identification before submitting the request with a Medallion Signature Guarantee Stamp.
However, Mrs. Russell knew that certain of the companies that First Command used had paperless programs that permitted client changes to investment accounts, annuities and insurance policies by simply submitting the required documents with only a Medallion Signature Guarantee Stamp.
Between April 2012 and April 2013, Mrs. Russell identified 18 of First Command’s clients that appeared to have dormant or neglected accounts. In fact, eight, of the clients she targeted, were already deceased.
Mrs. Russell gained control of these 18 accounts, by falsifying various signature documents, forging change of ownership forms, powers of attorney and estate papers. She also used her position as associate director to cajole her subordinates to issue Medallion Signature Guarantee Stamp on the forged documents.
With the forged documents containing a Medallion Signature Guarantee Stamp, she would then submit the bogus documents and withdraw cash or obtain policy loans that were transferred to one of her 12 different bank accounts.
Scheme falls apart after stealing $316,000
By the middle of April 2013, Mrs. Russell had left First Command and various investigations inter her activities had begun.
Upon leaving First Command in April, Mrs. Russell let her Texas resident insurance license expire on June 23, 2013.
On July 1, 2013, a policyholder filed a complaint with the Texas Department of Insurance concerning a loan taken out against his account. The loan taken out by Mrs. Russell was eventually repaid out of the money from other person’s accounts.
On August 27, 2013, FINRA issued its first notice of suspension, shortly followed by a second suspension on September 20, 2013, and a final suspension on December 2, 2013. Each of the suspensions barred Mrs. Russell from association with any FINRA member “in any capacity.”
During the same time period, the Monumental Life Insurance Company (“Monumental Life”), began investigating two fraudulent loans on their life insurance policies.
One of the policies had documents requesting a loan on a policy, after the existing owner allegedly provided a change of ownership from himself to one “Sheila Russell”, with an address for Mrs. Russell’s home. The loan request form had Mrs. Russel’s cell phone number as the contact telephone number.
In the second case, Monumental Life had a policy owned by a single woman. This policy had had a change of ownership request from the single woman to Mrs. Russell’s son, Charles Russell. The documentation provided stated that the change was being made because the prior owner and Charles Russell “were planning to marry and are in the process of moving. The policy loan is needed as part of a down payment on their home.”
Both of these policy owners, who had no relationship whatsoever with Mrs. Russell or her son, filed fraud affidavits to get their monies returned.
On September 26, 2013, Monumental Life terminated Mrs. Russell’s agent’s license and, as part of the termination process, notified insurance departments that had issued her licenses, of the circumstances involving Mrs. Russell’s termination.
Before she was stopped, Mrs. Russell had siphoned off some $316,000 through withdrawals and loans from dormant investment accounts and from insurance policies owned by First Command’s clients.
U.S. Attorney brings felony charge for wire fraud
As the investigations into Ms. Russell’s activities developed, the FBI was called into to investigate. Mrs. Russell’s clear document trail quickly resulted in a referral of Mrs. Russell’s case to the United States Attorney for the Northern District of Texas. Upon receipt of the case, the U.S. Attorney initiated criminal proceedings against Ms. Russell.
By August 2014, Ms. Russell had agreed to plead guilty to a one count Felony Information alleging that:
…the defendant Redonda Russell, for the purpose of executing and attempting to execute the scheme and artifice to defraud and to obtain money by means of materially false or fraudulent pretenses or representations, knowingly caused to be transmitted in interstate commerce, by means of a wire communication…after fraudulently liquidating the investment account of [First Command] client…which deposit was transmitted via interstate wire from the State Street Bank and Trust processing center in North Quincy, Massachusetts, to Chase Bank in Jacksonville, Florida, thereby causing those funds to be deposited into her Chase Bank account.
Additionally, the United States Attorney sought a forfeiture money judgment in the amount of the $316,000 that Mrs. Russell had embezzled.
Mrs. Russell made a motion at sentencing to minimize, if not avoid, jail time, arguing that she was 68 years old, had made partial restitution, and was the sole provider of her former pastor husband who suffered from depression and who had a history of attempted suicide. Ignoring her pleas, at the sentencing, the federal judge ordered Mrs. Russell, “committed to the custody of the Federal Bureau of Prisons (BOP) for a period of 12 months and 1 day.”
The Court did not order a fine because the judge found that the “defendant does not have the financial resources or future earning capacity to pay a fine.”
The Court did order restitution in the amount of $316,000 and supervised release for a term of 3 years, following Mrs. Russell’s release from prison.
Bankruptcy filing omits $169,000 account
Mrs. Russell was ordered by the Federal Court to begin her sentence on January 27, 2015. The same day, January 27th, Mrs. Russell filed for bankruptcy.
Bankruptcy law required Mrs. Russell to schedule under oath with her filing all her debts and assets. In filing, however, she failed to schedule her criminal restitution debt. She also failed to schedule her retirement accounts with First Command. In fact, she specifically stated on one required schedule, signed under the penalties of perjury, that she did not have any “[i]nterests in IRA, ERISA, Keogh, or other pension or profit sharing plans.”
On March 2, 2015, less than five weeks after her bankruptcy filing, Mrs. Russell had an attorney, who did not represent her in her criminal case or in the bankruptcy case, send First Command a demand letter stating that if First Command did not pay Russell her retirement benefits, which were estimated to be worth approximately $169,000, within four days, he would “seek all legal remedies available including but not limited to actual damages, exemplary damages, attorneys fees and costs of court.”
The United States Attorney’s Office quickly learned of Mrs. Russell’s machinations involving bankruptcy filings and her misstatements regarding her retirement account with her former employer. In short order, they obtained a Bankruptcy Court order allowing United States Marshalls to seize the undisclosed retirement funds for purposes of restitution.
Regulatory agencies and divisions of insurance revoke licenses
As a result of the investigation and the criminal indictment, FINRA revoked Mrs. Russell’s advisor licenses. The SEC followed with a consent decree that barred her from any involvement in the securities industry.
Additionally, based on the notices from Monumental Life and the indictment, the states of Kentucky, North Dakota, West Virginia, Vermont, Maine, South Dakota and Arkansas either revoked her non‑resident producer licenses or entered into consent decrees with the same effect.
Massachusetts revokes license for failure to report criminal case or administrative actions
The Massachusetts Division of Insurance began its proceedings against Mrs. Russell on October 8, 2015, by its usual procedure of issuing an Order to Show Cause. Since Mrs. Russell was still serving her federal prison sentence, the Division gave notice through the Bureau of Prisons.
The Division sought license revocation based upon Mrs. Russell’s failure to report the criminal prosecution, the administrative actions in other states, and the FINRA suspension or employment bar to the Division within the time periods prescribed in G. L. c. 175, §162V. The Division also sought fines, as well as license revocation, based upon Mrs. Russell’s violations of G.L. c. 175, §162R (a)(6), (a)(8) and (a)(9) as well as fines.
Although by the time the hearing of the Division’s Order convened, Mrs. Russell had been released from Federal prison, unsurprisingly, she did not appear to contest the Division’s charges.
The Hearing Officer found that she had received sufficient notice and entered a default.
Revocation ordered but fines limited to actions in Massachusetts
On the default, the Hearing Officer ruled that:
The number and nature of the grounds that the Division cites for taking disciplinary action against Russell fully warrant its request to revoke her Massachusetts insurance producer license. On this record, I find that, in addition to revocation of her license, Russell should be prohibited from transacting any insurance business, directly or indirectly, in Massachusetts, and should be required to dispose of any interests she may have in any insurance business in Massachusetts.
In this case, the Hearing Officer made a finding that has not previously been observed in any of the prior cases reported by Agency Checklists in the last six years. She ruled that:
It is reasonable to consider imposing a fine when the disciplinary action arises from the respondent’s personal actions. I am not, however, persuaded that a fine is reasonable if the disciplinary action is based on an action taken elsewhere against the respondent.
The Hearing Officer went on to state that:
I conclude that while the record fully supports revocation of Russell’s license under (a)(6) and (a)(9), no fine should be imposed. The third ground, (a)(8) would support a fine; however, there is no evidence that Russell’s fraudulent activities affected Massachusetts residents.
However, what the Hearing Officer did find was that “Because Russell failed to report the administrative actions or criminal conviction to the Division in a timely manner, she remained licensed in Massachusetts as a producer for about a year and a half after the first administrative decision.”
This particular violation the Hearing Officer did find to be one that “affected Massachusetts residents” and she ruled:
I will therefore impose the maximum fine of $500 for each of seven violations. Russell is hereby assessed a penalty of $500 each for seven failures to report an administrative action or a conviction, for a total of $3,500.
In prior cases that Agency Checklists has reported, nonresident licensees who have failed to report criminal proceeding or just administrative proceedings the Division’s Hearing Officer have received fines imposed under G.L. c. 176D, that allows fines of up to $1,000 per violation.
In this case, the Hearing Officer abandoned the use of G.L. c. 176D and its higher fines and applied the penalty found in G.L. c. 175, § 194, which states:
Whoever violates any provision of this chapter, the penalty whereof is not specifically provided for herein, shall be punished by a fine of not more than five hundred dollars.
While the Hearing Officer did find that Mrs. Russell’s failure to report were in fact, violations, she did not classify these as unfair and deceptive acts under Chapter 176D. Instead, she imposed fines based upon the general penalty of the insurance statutes, which reduced the maximum fines from $7,000 to $3,500.
However, since the United States Attorney successfully seized the funds that Mrs. Russell had tried to squirrel away by her bankruptcy, the question of whether these fines could have been greater or lesser seems purely academic. The chances of the Commonwealth collecting any money on the Hearing Officer’s Order from Mrs. Russell seem slim to none, at best.