On April 11, 2017, the Attorney General announced the settlement of a suit filed in 2015, against an insurance agent and a reverse mortgage broker who had concocted a scheme to generate commissions by deceiving elderly clients into buying variable life and annuity products from the insurance agent, James D Moniz, with money from reverse mortgages obtained on their homes through an associated reverse mortgage broker, Daniel Matthews.
In August 2015, Attorney General Maura Healey filed a lawsuit against Mr. Moniz, Mr. Matthews, and Mr. Matthews employer, Direct Finance Corp. The Attorney General did not sue the insurance company that supervised Mr. Moniz, John Hancock Life Insurance (“John Hancock”), as it had entered into a settlement with the Attorney General in 2013 through a court-approved assurance of discontinuance.
Insurance agent and reverse mortgage affiliations barred by federal law
The Attorney General’s 2015 lawsuit alleged that while affiliate with John Hancock Life, Mr. Moniz worked with Mr. Matthews to induce elderly clients to take out reverse mortgages on their homes through Mr. Matthews’ employer Direct Finance and then use the reverse mortgage proceeds to purchase variable life and annuity products from Mr. Moniz that were objectively unsuitable investments for these seniors. However, the unsuitable investments did pay Mr. Moniz significant commissions.
Because the reverse mortgages did not require Mr. Moniz clients to make monthly payments, these elder clients were not always aware of the consequences of Mr. Moniz financial legerdemain. With these reverse mortgages, the borrowers had their homes’ equities decrease over time as interest and fees were added to the loan balances monthly, while the variable life insurance and variable annuities Mr. Moniz his elder clients had substantial surrender and withdrawal penalties.
Since federally insured reverse mortgages can only be issued to persons 62 years old or older, Congress in 2008 recognized the potential for senior citizens having their home equities lost to symbiotic dealings between reverse mortgage brokers and unscrupulous insurance agents. In that year, Congress prohibited reverse mortgage brokers from associating in financial transactions with insurance agents. (“[A]ny party that participates in the origination of a [federally insured reverse mortgage] shall not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity” (Emphasis added)).
John Hancock pays for its lack of supervision of Mr. Moniz
After receiving complaints, the Attorney General investigated Mr. Moniz’s actions. The Attorney General learned that Mr. Moniz had convinced elder clients to enter into reverse mortgages through Mr. Mathews at Direct Finance to fund variable annuities or variable life insurance purchases.
In September 2014, John Hancock settled with the Attorney General without the necessity of a lawsuit and agreed to pay back the Massachusetts senior citizens who Mr. Moniz duped into buying unsuitable variable life insurance policies, variable annuities and other insurance and financial products because of Mr. Moniz’s reverse mortgage scheme.
Ultimately, John Hancock paid nearly $900,000 under its assurance of discontinuance to seniors in Massachusetts to resolve the Attorney General’s allegations against the company. The assurance of discontinuance also required John Hancock to make 145 additional refund and penalty waiver offers to consumers, primarily seniors, who purchased certain variable annuities and variable life insurance policies because of Mr. Moniz on J0hn Hancock supervised activities. Besides the restitution payments, John Hancock paid the Commonwealth $165,000 in penalties and investigation costs. See Agency Checklists September 30, 2014 article, John Hancock To Refund Mass. Senior Citizens For Sales Of Unsuitable Life Insurance Polices & Annuities.
$137,500 in additional refunds on the latest settlement
Under the settlement with Mr. Moniz, Mr. Matthews and Direct Finance announced by the Attorney General, Massachusetts seniors will receive a $137,500 in refunds in addition to those paid by John Hancock.
In announcing the settlement, Attorney General Healey stated: “We found that these defendants took advantage of elderly homeowners who spent decades building equity in their homes,” she went on to state that: “My office is focused on stopping the financial abuse of seniors.”
The refunds for affected consumers will be distributed by the Attorney General’s Office and the eligible consumers will be contacted by the Attorney General’s Office.
In addition to monetary relief, the settlement imposes restrictions on Mr. Moniz, Mr. Matthews, and Direct Finance to prevent improper association between the origination of reverse mortgages and the investment of the proceeds in annuities or other investment products. The defendants are also prohibited from misrepresenting the sources of investments or investment intentions of their clients.
Mr. Moniz’s other settlements for unfair insurance sales practices
Since Mr. Moniz was selling insurance products that had a securities component such as variable annuities and variable life insurance, he held licenses from FINRA, the Financial Industry Regulatory Authority as well as the Massachusetts division of insurance.
The FINRA website shows that Mr. Moniz was affiliated with John Hancock Life or one of its subsidiaries, Signator Investors from 1978 until October 2013 when he was terminated. The FINRA site shows that Mr. Moniz never had a complaint made against him between 1978 and 2006. But by 2013, Mr. Moniz had reported settlements and sanctions arising out of his sales activities, including:
- In August 2013, a complaint over an unsuitable insurance products sold by Mr. Moniz received a settlement of $59,000.
- In September 2013, a complaint alleging misrepresentation as to premium amounts resulted in a settlement of $14,892.21.
- In June 2014, Mr. Moniz entered consent order, without admitting or denying the findings that he had a client purchased a variable life policy using a reverse mortgage with the application had been doctored. Mr. Moniz consented to pay a $25,000 civil penalty to FINRA, disgorge his $12,378 commission and a six-month suspension of his registration. In August 2015
- In July 2014, a complaint alleging misrepresentation of a policy sold to the parents of the complainant resulted in a settlement of $322,652.91.
- In August 2015, the Attorney General sued Mr. Moniz for unfair and deceptive business practices along with Mr. Matthews and Direct Finance.
- In December 2015, the Massachusetts Secretary of State’s Securities Division entered into a consent decree requiring that for a period of five years the broker-dealers supervising him distribute a copy of a comprehensive consent order to any current or future clients of Mr. Moniz and to provide detailed screening of any annuity recommendations by Mr. Moniz to a client over 60 years of age.
As of May 1, 2017, Mr. Moniz appears to be out of the business of selling security-based insurance or annuity products since he no longer has any FINRA registrations.
Attorney General’s team
The litigation and the settlement implementation are being handled by staff of Attorney General Healey’s Insurance and Financial Services Division, including Assistant Attorneys General Tiffany Bartz, Claire Masinton, and Tim Hoitink, as well as Legal Analyst John-Michael Partesotti and Civil Investigator Kristen Salera.