Or is it black and white? What do you think?
As a fraud investigator, I have to say my curiosity was a bit tickled when I was contacted by Mr. Thompson who wanted me to take a case on behalf of clients who wanted me to determine whether or not their life insurance policies were valid, legal and legitimate. It was the first time a person convicted of infractions leading to such a situation made contact with me in order to ask me to help and protect the clients he took advantage of.
The DGA Case
As we can see in the communiqué of the AMF (Quebec regulator), Mr. Thompson had been found guilty of several infractions in regards to selling insurance while not licensed; guilt that he was not contesting:
Montréal, November 30, 2010 – On November 25, 2010, Louis Thompson, a former insurance representative, pleaded guilty before Judge Gaby Dumas of the Court of Québec, district of Laval, to the 136 counts brought against him, and was fined $102,000.
Specifically, Louis Thompson pleaded guilty to 33 counts of illegally acting as an insurance of persons representative and 103 counts of illegally receiving a commission in connection with the sale of a financial product.
My curiosity was even more tickled since I believe it is impossible for a person who is not licensed to sell any insurance product. This conclusion is based on my 25 years experience in the insurance industry. An unlicensed person cannot send an insurance application to an insurance company. For this you need a contract with the insurer and to sign this contract you need proof of a license and error and omission insurance. Can you counterfeit a license? In Quebec it is impossible as you have an online database of everyone who is licensed. So no one should be able to sell life insurance without a license… unless… yes… where there is a will, there is often a way.
In order for an unlicensed individual to sell insurance, he must have the complicity of a licensed agent who will front the policy. The application unsigned will be sent to this agent who then will sign it and arrange the underwriting. When the policy is issued, it is sent to the advisor who will forward it to the unlicensed individual for delivery. The commission is paid to the licensed agent who then pays illegally a share of this commission to the unlicensed agent.
In this case, the firm fronting Thompson was Distribution Group Association (DGA) and the principal and agent was Mr. Galarneau. So far these were pretty straight forward infractions and you don’t need to be a Columbo to put 2 and 2 together. But why were the clients afraid their insurance policies were not valid? This is where the plot thickened considerably and led me to an amazing investigation…
DGA and AMF (regulator), partners in crime?
During the course of my investigation, I never thought for one moment that I would end up asking this question. Under the law, Thompson had not committed fraud. He did not steal any money. He had acted illegally without a license and accepted commission, two penal infractions under the penal provisions of the Law regarding the distribution of financial products. DGA and its agent and principal (Mr. Galarneau) on the other hand had violated their code of ethics, violated four sections of the penal provisions and possibly had committed a criminal act of fraud. This was serious. We could therefore have expected the AMF to come down hard on DGA and Galarneau.
However this did not happen. DGA and Galarneau were given a free pass and no accusations were made against this firm and agent. Instead the firm DGA was allowed to close and to be sold to another firm called Action Courtage. Galarneau enriched for a second time by the sale of his firm was allowed to retire comfortably and to disappear. This was done in secrecy and the clients were kept in the dark. This is why they were starting to ask questions on the legitimacy of their policies.
My personal experience is when a fraud is hidden; it prepares the ground for a new fraud. The victims are victimized again. This is exactly what happened. Action Courtage, the firm that bought the book of business sent one of its agents named El Chami to meet the clients. The goal of this agent was to replace the policies most of them placed at Transamerica by telling the clients their policies were illegal and invalid; the result of fraud. They were paying premiums for nothing. Most of the clients were uninsurable and upon the advice of this agent, they canceled their policy paying surrender charges and using the little cash left to pay for new policies issued on a guaranteed issue basis. For example, one client had a $100,000 life policy that was replaced by a $10,000 policy guaranteed issue. A guaranteed issue policy does not pay the death benefit in the first 2 years. It only pays a refund of premium.
When the clients discovered the truth and that their policies were in fact possibly legal, the clients made several complaints to the regulator (AMF) but their complaints went unanswered. They complained to the association of advisors (Chambre Financiere) and again they went unanswered. Nobody, even the insurer Transamerica who had a fiduciary duty towards the clients wanted to intervene and to tell them if their policies were valid or not. They were desperate and this is why they needed my help.
I therefore conducted in depth interrogations of the clients/victims and Mr. Thompson; who forwarded commission statements issued by DGA and many other documents and proofs. These all led to one single question. Why was DGA being protected by the regulator and insurer? This was a question I wanted an answer but I was ready to settle for a letter from the regulator and Transamerica to be sent to the victims stating that the policies were valid plus the reinstatement of all the policies that had been illegally cancelled. My demands were ignored. Like the victims, I simply could not get anything out of the insurer or the regulator.
BDR Docket 2012-048
I therefore knew that in order to learn the truth, I had to find a way to subpoena employees of the regulator and Transamerica in order to ask them some serious questions under oath in front of a tribunal. I had a lucky break. The Quebec Finance Minister had just changed the law allowing people to make private accusations to an administrative tribunal call the BDR (Bureau de decision et revision) as an interested person if the regulator (AMF) after a complaint had refused to act on this complaint. The BDR could then either issue injunctions or imposed fines of up to $2 million for each infraction.
Using this law, I therefore filed private accusations not against DGA but against the regulator (AMF Chambre Financiere) and the insurer Transamerica. I knew it was a long shot as I would have to prove that I was an interested party. But I knew even if I lost on this basis that I would be able to indirectly prove the legality of the life policies sold by DGA therefore protecting the victims against any further frauds. If I lost it also meant that the victims who had their insurance cancelled and replaced illegally would not recover their life policies.
As expected, the AMF, Chambre Financiere and Transamerica petitioned the court for a dismissal of the action on the basis I had no personal interest. In fact, the AMF presented the argument in court that it had the right to hide a fraud from its possible victims even if this fraud would void the life policies involved. Without going into all the legalities, I argued that such statement by the AMF was so prejudicial cancelling all jurisprudence that it destroyed any and all confidence for any life policy holder in the legitimacy of their insurance. Yes, there was a public interest but there was also a personal interest. As a policy holder how can I know if my policy is legitimate if a fraud can be hidden legally by those who are supposed to protect me. This would impact the formation of any life contract without anyone knowing it. Let’s just say that there is a gray area between public interest (government) and personal interest and I was hoping to reach this gray area. I failed with the court stating basically that to acquire such an interest I would literally have to die and then I would have an interest in the legality of my life policy if the death benefit was not paid. I’ll put this on my list to do when I am dead.
So yes I lost. But as a result, the victims who still had their policies with Transamerica knew they were legal. I could do nothing for the victims who had their policies replaced. …
But my investigation was not totally finished. I had another question. Why was Mr. Thompson not licensed in the first place? What had happened in order for him to lose his right to make a living; a right guaranteed under the Charter of rights; and for him to believe his only way out was to sell insurance without a license?
He had been a licensed advisor and when he had requested the reinstatement of his license following the end of his fight with cancer, his request was denied. There were no decisions or judgment to support this decision of preventing him to get his license. There was simply an anonymous directive coming from high up stating: “not to give him his under any pretexts”. Faced with paying his bills linked to cancer and having to earn a living, Thompson had then decided to dispense of the need to get this unobtainable license.
In fact, the story of Mr. Thompson is not uncommon. It is one of conflict. He started with a company called Laurentienne. He became the top salesman of his branch but then conflict erupted. He had a lot on his mind; a divorce and the death of his daughter. His sales went down and he was let go for not producing sufficiently. (Sometimes you are only as good as your last sale.) He was told he would still get to keep his service commission and on this basis he decided to take the rest of the year off to mourn his daughter.
Suddenly he noticed that his clients were being given to other advisors who were busy replacing the policies. His service commission was disappearing and he needed to act. So he went back to work entering literally into a war of replacements. In this war, as an independent, he was the clear winner. As an independent, he had accessed to insurance companies that were new entrants in the Canadian market such as NN and who had priced their insurance policies at a ridiculous level in the hope of buying market share. These policies would later become the toxic life policies which are still today impacting the bottom line of many insurers. With such products in his tool box, Thompson won this war against his former colleagues with a wide margin. But there was some collateral damage. Two hundred complaints of illegal replacements were made by his former colleagues. While he was able to beat these complaints, his reputation was made and this would come to hunt him much later in a complaint of negligence.
A few years later, again Thompson was accused of illegal replacements. Strangely the Court found that the replacements he had made were made in the best interest of the client by increasing their coverage for the same price. However he was found guilty of an unusual accusation. In the mind of the Court, he should have given to the original company the first right in replacing the policy. This is quite bizarre as it is not what the law said. The original company has only the right of conservation and not the right of replacement.
However in one of these replacements, Thompson was negligent. On the original policy, he had told the client to stop paying premium believing the cash value would sustain the policy for a few years. However the client had only paid 23 of the 24 payments required. The client committed suicide and the new policy did not pay the death benefit under the suicide clause and the old policy which they thought in force was not.
Thompson was therefore suspended temporarily for negligence. He wanted to appeal but he made instead a deal with the procurer in desisting from this appeal preferring to concentrate on fighting his cancer. In fact, in Court, the judge had commented on his lack of mental presence like he was not there wandering if this was because of his medication.
A year later, having successfully fought his cancer, he asked to have his license reinstated but without any explications this request was denied and the rest is history and explains his decision sell insurance illegally.
In an investigation, it’s difficult not to feel empathy for the victims. Bad decision leads to poor actions which lead to more bad decisions and at the end only the victims are left to account for the consequences.
You notice also how easy the infractions or fraud could have been avoided. It was absolutely wrong for Thompson to do what he did. Still we all have a guaranteed right to make a living and this right is guaranteed in the constitution because we know that if people lose this right they will do whatever needs to be done to survive such as a person starving who will steal an apple. This mess would have been avoided if Thompson had been licensed and supervised with such supervision easily established as a condition of licensing. If the regulator, the AMF, had prosecuted DGA and Galarneau, most of this fraud would have been prevented. In fact, documents seem to prove that the AMF knew Thompson was not licensed in 2005 but only acted in 2009. Was this linked to a major lawsuit filed by DGA against an insurer? In fact the president of this insurer commented that if he had known about the illegal activities of DGA this would have probably impacted the judgment and certainly the amount of damages awarded.
However I have to say I am concerned by what my investigation has revealed; a change in the attitude of the regulators and insurers towards the sanctity of the insurance as a promise by taking the position it can hide anything that could void this promise making it just an empty promise.
So to come back to my question. Are there 50 shaded of fraud? Or is it just black and white?