Alert to producers: selling unregistered securities
To: All Insurance Licensees (Agents, Brokers, Agencies & Producers)
Re: Marketing of Unregistered Securities by Insurance Licensees
This notice is to educate those holding licenses issued by the Department of Insurance regarding sales activities involving products other than insurance. The Missouri Commissioner of Securities, under the direction of the Secretary of State, has opened numerous investigations into the activities of insurance licensees selling investment products. These investment products include promissory notes, nine-month notes, commercial paper, prime bank notes and debentures, and customer-owned, coin-operated telephones.
Missouri securities law states it is unlawful to sell a security in Missouri unless the security is registered, exempt from registration or qualifies under federal exemptions as a federally covered security. Any individual who sells securities must be registered with the Division of Securities or fit a narrowly defined exclusion. The risks associated with investment products are very different from those associated with insurance products. Additionally, individuals licensed to sell securities receive training on when investment recommendations are suitable for particular investors. Securities agents also operate under the supervision of compliance officers.
The Securities Division may seek an order from the Securities Commissioner prohibiting violations of the securities law. Additionally, the Securities Commissioner may file a lawsuit against individuals violating the securities laws and seek to recover money from the individuals, including the commissions earned from the sale of the unregistered investments. Finally, the Commissioner may refer these cases for criminal prosecution.
Under Missouri insurance law, the department investigates and seeks discipline of a licensee on the basis of misrepresentation, fraud, deception, misappropriation and demonstrating a lack of trustworthiness or competence in an insurance transaction. If an insurance licensee involves insurance clients and the client's insurance policies in sales of the above-described products, the department investigates and determines whether such grounds for discipline exist. Discipline includes a monetary penalty, suspension or revocation of the license. The department may also join in the referral for criminal prosecution.
Insurance licensees should not rely on any representation that the investment product is not a security. These representations are often incorrect. Should the representations prove to be incorrect, reliance on them would not excuse the individual from liability under the securities or insurance laws.
Insurance licensees who are also securities agents may face additional problems if they offer or sell these products. Securities agents must disclose any outside business activities to their broker-dealers. Failure to disclose these activities may result in disciplinary action against the agent by the broker-dealer. In addition, selling unregistered products in Missouri constitutes grounds to revoke an agent's securities registration.
Any licensee or anyone who has questions about any product that purports to be a security not subject to regulation is encouraged to call the Division of Securities at (573) 751-4136. Any licensee or anyone who has questions about an insurance licensee offering for sale any investment or other product is encouraged to call the Department of Insurance at (573) 751-2640.