Initiated By
FINRA
Allegations
NASD RULES 1031(A), 2110, 2210(B)(1), 2210(D)(1)(A), 2210(D)(1)(B), 2211(D)(1) 2310, 3030, 3040: AHMANN SOLD BONDED LIFE SETTLEMENT SECURITIES TO CUSTOMERS THEREBY PARTICIPATING IN PRIVATE SECURITIES TRANSACTIONS AFTER HAVING BEEN SPECIFICALLY DENIED PERMISSION TO DO SO BY HIS MEMBER FIRM. AHMANN'S CUSTOMERS INVESTED $1,750,000 IN A TOTAL OF SEVEN INSURANCE POLICIES IN THE BONDED LIFE SETTLEMENTS AND IN TOTAL, THE BONDED LIFE SETTLEMENTS COMPANY PAID APPROXIMATELY $120,475.90 IN COMMISSIONS RELATED TO AHMANN'S SALES. AHMANN LACKED A REASONABLE BASIS TO RECOMMEND THE PURCHASE OF THE BONDED LIFE SETTLEMENTS TO HIS CUSTOMERS GIVEN HIS FAILURE TO PERFORM A REASONABLE INVESTIGATION CONCERNING THE LIFE SETTLEMENT PRODUCT. ALTHOUGH AHMANN INQUIRED ABOUT THE MANNER IN WHICH THE COMPANY THAT OFFERED THE LIFE SETTLEMENTS PROCURED LIFE INSURANCE POLICIES FOR ITS OFFERINGS, HE TOOK NO FURTHER ACTION WHEN THE COMPANY'S PRINCIPALS POINTEDLY REFUSED TO SHARE THAT INFORMATION WITH HIM. AHMANN'S FIRM'S CHIEF EXECUTIVE OFFICER (CEO) ASKED AHMANN WHETHER A SALE OF STOCK AND SUBSEQUENT WITHDRAWAL OF FUNDS IN THE ACCOUNT OF A CUSTOMER WAS IN ANY WAY RELATED TO HIS SUSPECTED PARTICIPATION IN PRIVATE SECURITIES TRANSACTIONS INVOLVING THE BONDED LIFE SETTLEMENTS. AHMANN TOLD THE CEO THAT HE WAS NOT PARTICIPATING IN THE SALE OF LIFE SETTLEMENTS AND HAD NOT RECOMMENDED THEM TO INVESTORS, WHICH WAS NOT TRUE. IN FACT, PRIOR TO THE DATE OF AHMANN'S MISREPRESENTATION, A CUSTOMER HAD BEEN SOLICITED BY AHMANN TO PURCHASE A BONDED LIFE SETTLEMENT AND HAD SIGNED TRANSACTION PAPERWORK RELATED TO THAT PURCHASE. THE LANGUAGE IN SALES MATERIAL FOR THE BONDED LIFE SETTLEMENTS THAT AHMANN PROVIDED TO A CUSTOMER WAS OVERSIMPLIFIED AND CONTAINED NO DESCRIPTION OF RISK OR EXTENUATING FACTORS THAT COULD IMPACT THE INVESTMENT'S PERFORMANCE THEREBY FAILING TO PROVIDE THE READER WITH A SOUND BASIS FOR EVALUATING THE MERITS OF THE INVESTMENT. MOREOVER, THE STATEMENT IN THE SALES MATERIAL THAT IT WAS INTENDED TO SERVE AS "LAYMAN'S DESCRIPTION" IS MISLEADING, GIVEN THE COMPLEX NATURE OF THE PRODUCT AND THE RISKS INVOLVED. CHARACTERIZING THE PRODUCT IN SUCH A SIMPLE MANNER CONSTITUTES A VIOLATION OF NASD RULE 2211(D)(1). IN ADDITION, AHMANN DID NOT PRESENT THE SALES MATERIAL FOR REVIEW TO A REGISTERED PRINCIPAL OF HIS FIRM PRIOR TO USING THEM IN CONNECTION WITH HIS SALES OF THE BONDED LIFE SETTLEMENT TO A CUSTOMER. AHMANN FAILED TO OBTAIN ADEQUATE INFORMATION REGARDING THE QUALIFICATIONS OF THE COMPANY PRINCIPALS TO ISSUE LIFE SETTLEMENTS AND TO EXAMINE REPORTS OF THE COMPANY'S FINANCIAL STATUS IN ORDER TO ASSESS THE ECONOMIC WELL BEING OF THE COMPANY. MOREOVER, AHMANN FAILED TO ADEQUATELY INQUIRE ABOUT THE COMPANY THAT RE-INSURED THE UNDERLYING LIFE INSURANCE POLICIES PRIOR TO RECOMMENDING AND SELLING THE BONDED LIFE SETTLEMENTS. AHMANN LACKED A REASONABLE BASIS TO RECOMMEND THE PURCHASE OF INSTALLMENT PLAN CONTRACTS OFFERED BY A NON-PROFIT CORPORATION THAT REPRESENTED ITSELF TO THE PUBLIC AS A CHARITABLE ORGANIZATION GIVEN HIS FAILURE TO PERFORM A REASONABLE INVESTIGATION CONCERNING THE PRODUCT. THE INSTALLMENT PLAN CONTRACTS PROMISED A TAX DEDUCTION, AS WELL AS FIXED DEFERRED PAYMENTS AT AN UNSPECIFIED RATE OF RETURN, IN EXCHANGE FOR EACH CUSTOMER'S TRANSFER OF OWNERSHIP OF EXISTING ANNUITIES TO THE NON-PROFIT. AHMANN'S CUSTOMERS EXCHANGED EXISTING ANNUITIES WITH A COMBINED ACCUMULATED VALUE OF AT LEAST $195,000 FOR THE INSTALLMENT PLAN CONTRACTS. AHMANN FAILED TO ADEQUATELY ASCERTAIN WHICH, IF ANY CHARITIES WERE SUPPORTED BY THE NON-PROFIT, THE MANNER IN WHICH THE NON-PROFIT INVESTED CUSTOMER FUNDS AND THE EXISTENCE OF A CEASE AND DESIST ORDER ISSUED BY A STATE AGAINST THE NON-PROFIT WHICH WAS PUBLICLY AVAILABLE ON THE INTERNET AND PRECEDED AHMANN'S INSTALLMENT PLAN CONTRACTS SALES. [CONTINUED IN COMMENT]
Resolution
Acceptance, Waiver & Consent(AWC)
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
11/14/2011
Regulator Statement
[CONTINUED FROM ALLEGATIONS]: AHMANN LEARNED THAT THE NON-PROFIT'S APPLICATION FOR STATUS AS A 501 (C)(3) ORGANIZATION WAS PENDING AND HAD NOT YET BEEN GRANTED BY THE U.S. INTERNAL REVENUE SERVICE (IRS) AND THAT INVESTORS WOULD NOT BE ENTITLED TO A TAX BENEFIT IF THE NON-PROFIT'S APPLICATION WAS ULTIMATELY DENIED. HE FAILED TO INFORM HIS CUSTOMER THAT THE NON-PROFIT'S APPLICATION REMAINED PENDING AND THAT THEY WOULD NOT RECEIVE A TAX BENEFIT IF THE APPLICATION WAS ULTIMATELY DENIED. A PREDOMINATE FEATURE OF THE NON-PROFIT'S PRODUCT WAS THE REPORTED TAX SAVINGS AN INVESTOR WOULD ENJOY THROUGH THE PURCHASE OF AN INSTALLMENT PLAN CONTRACT. ISSUES CONCERNING THE TAX DEDUCTIBILITY OF THE PRODUCT ARE CLEARLY MATERIAL AS IT WAS A KEY FEATURE OF THE PRODUCT AND, TOGETHER WITH THE NON-PROFIT'S STATUS AS A CHARITABLE ORGANIZATION, A FACTOR THAT DISTINGUISHED IT FROM OTHER SIMILARLY STRUCTURED PRODUCTS. ITS TAX DEDUCTIBILITY WAS ALSO PROMINENTLY ADVERTISED BY THE NON-PROFIT AND, IN MANY INSTANCES, A KEY FACTOR IN INVESTORS' CHOICE OVER ALTERNATIVE PRODUCTS. IN CONNECTION WITH HIS SALE OF THE INSTALLMENT PLAN CONTRACT TO A CUSTOMER, AHMANN PRESENTED THE CUSTOMER WITH ILLUSTRATIONS PREPARED BY THE NON-PROFIT WHICH INCLUDED A COVER PAGE, A FLOW CHART GRAPHICALLY DEPICTING THE TERMS OF THE PROPOSED INSTALLMENT PLAN CONTRACT AND A 1099 STATEMENT DETAILING THE AMOUNT OF THE SCHEDULED PAYMENTS AND LISTING THAT PORTION OF THE ANNUAL PAYMENT WHICH WAS TO BE "REPORTED AS TAX FREE" AND THAT PORTION WHICH WAS TO BE REPORTED AS "ORDINARY INCOME." THE FLOW CHART SHOWN BY AHMANN TO THE CUSTOMER FAILED TO REFLECT THAT THE TOTAL PAYOUT AMOUNT INCLUDES A RETURN OF PRINCIPAL AND DID NOT SPECIFY THE RATE OF RETURN. SUCH OMISSIONS PROVIDED AN OVERSIMPLIFIED AND EXAGGERATED PRESENTATION OF INVESTMENT RETURNS. THE DESCRIPTIONS CONCERNING TAX DEDUCTIONS AND TAX SAVINGS WERE OVERSIMPLIFIED, INCOMPLETE AND MISLEADING. IN ADDITION, THE FLOW CHART PROVIDES NO EXPLANATION AS TO HOW THE TAX FIGURES WERE DERIVED. THE 1099 STATEMENT DESCRIPTION HEADING FOR THE PRINCIPAL COLUMN, ENTITLED "REPORTED AS TAX-FREE," PROVIDED THE FALSE IMPRESSION THAT THIS COLUMN REPRESENTS TAX-FREE INCOME. AHMANN DID NOT PRESENT THE FLOW CHART AND 1099 STATEMENT FOR REVIEW TO A REGISTERED PRINCIPAL OF HIS FIRM PRIOR TO USING THEM IN CONNECTION WITH HIS SALES OF THE INSTALLMENT PLAN CONTRACT TO A CUSTOMER.
AHMANN DID NOT PROVIDE WRITTEN NOTICE TO HIS FIRMS OF HIS EMPLOYMENT WITH AN INDIVIDUAL OR A COMPANY, NOR DID HE PROVIDE WRITTEN NOTICE OF HIS RECEIPT OF COMPENSATION FROM THE INDIVIDUAL. BOTH AHMANN AND THE INDIVIDUAL HELD INSURANCE LICENSES AND IN SOME INSTANCES, AHMANN AND THE INDIVIDUAL SHARED COMMISSION ON THE SALES OF FIXED ANNUITIES. AHMANN ROUTINELY USED STATIONERY AND FAX COVER SHEETS BEARING THE NAME OF THE COMPANY, HIS BUSINESS CARD IDENTIFIED HIM AS BEING ASSOCIATED WITH THE COMPANY AND AHMANN AND THE INDIVIDUAL SHARED ALL EXPENSES ASSOCIATED WITH THE MAINTENANCE OF THE COMPANY'S OFFICE. DOCUMENTS RELATED TO THE SALES OF THE BONDED LIFE SETTLEMENTS IDENTIFIED THE INDIVIDUAL AS THE SALES AGENT THOUGH AHMANN CLEARLY SOLICITED AND ARRANGED FOR THE SALES. ALTHOUGH THE COMMISSION PAYMENTS ASSOCIATED WITH THE BONDED LIFE SETTLEMENTS WERE ISSUED TO THE INDIVIDUAL, THE LATTER PAID THE COMMISSION MONIES TO AHMANN. THE COMPANY SUBSEQUENTLY ISSUED AHMANN AN IRS 1099 FORM REFLECTING THESE COMMISSION PAYMENTS. AHMANN HELD A SERIES 6 AND 63 LICENSES BUT HAS NEVER HELD A SERIES 7 LICENSE THAT WOULD PERMIT HIM TO ENGAGE IN THE SALE OF SECURITIES. NEVERTHELESS, AHMANN ENGAGED IN THE SALE OF BONDED LIFE SETTLEMENTS AND INSTALLMENT PLAN CONTRACT, EACH OF WHICH ARE SECURITIES.
WITHOUT ADMITTING OR DENYING THE FINDINGS, AHMANN CONSENTED TO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS; THEREFORE HE IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY.
