Fined by SEC, Dean Vagnozzi keeps his insurance license, says he plans an IPO

Dean Vagnozzi, who was fined more than $500,000 by federal regulators this week for selling unregistered securities, has a bold new plan for his next venture: selling stock in his own publicly traded company.

Vagnozzi believes this settlement with the Securities and Exchange Commission paves the way for the company to “restructure as a public company, which will alleviate advertising restrictions in the future,” said his lawyer, John Pauciulo.

Pauciulo said that there are no filings yet regarding an initial public offering of a planned life settlement fund, but that “the timeline is six months to a year. It would be for a newly created fund similar to those in Europe.”

That development surprised Lisa Braganca, a former SEC attorney and branch chief who handles securities cases.

If her mom were thinking of investing with Vagnozzi, Braganca said, “I’d tell her to read up on this person, read the SEC settlement, and then I would steer her elsewhere.”

The SEC fined Vagnozzi and his King of Prussia firm, A Better Financial Plan, over $500,000, and ordered that he cease and desist from selling what are known as “viatical” investment funds.

The problem wasn’t the product, according to the settlement, but that he never registered with the SEC. Also, he had too many clients in the funds who didn’t have a high-enough net worth for such a vehicle.

Vagnozzi did not admit wrongdoing. In an email to investors, he said, “My staff and I feel that the results of this investigation are the absolute best reason someone should invest with us.”

This is his second big penalty. Last year, the Pennsylvania state securities and banking regulator exacted a $490,000 fine, a record amount for that agency. In total, that’s $1 million in fines in two years.

Viaticals, also called life settlements, are life insurance policies that investors buy, mostly from older people who want to cash them out while they’re still alive. When the policyholders die, investors get the money.

There’s nothing inherently wrong with viaticals. What the SEC charged Vagnozzi with was failing to register his funds. (Read the settlement here: shorturl.at/fhoL7.)

Vagnozzi encouraged the public on the radio, websites, and at free-meal seminars to “invest like the big boys,” and touted his firm as a place to buy life settlements, claiming these are the “highest yielding, safe” investments in the market, according to the SEC.

One of Vagnozzi’s principal marketing techniques was to broadcast frequent radio advertisements on Philadelphia radio stations. He recorded variations of these ads using his own voice, where he promoted “double-digit returns without the volatility of Wall Street,” and invited listeners to call a toll-free number to learn about “an extremely secure investment that guys like Warren Buffett and other institutional investors have been using for decades.”

His audience? Mom-and-pop investors, many desperate to generate income at a time of historically low yields. With the volatility of the stock market, the coronavirus, and other worries, it’s an appealing pitch.

However, callers were asked to leave their contact information only if they had at least $50,000 “in hand” and “the ability to invest if you like what you hear.” They were not asked to provide information about their net worth, income, or investing acumen.

So what should investors be aware of when dealing with someone who offers multiple lines of business? Vagnozzi sells life settlement funds, life insurance, disability insurance, annuities, and other insurance products.

The confusing part is that each product — stocks, annuities, funds, and insurance — is regulated by a different agency. The SEC regulates investment funds, the state regulates insurance, another agency regulates brokers, and so on.

Vagnozzi can still sell insurance products, according to the Pennsylvania Department of Insurance website (www.insurance.pa.gov). The Insurance Department declined to comment, saying it can’t confirm or deny any investigation.

How long was the SEC looking into Vagnozzi? Three years. On Friday, Vagnozzi’s attorney sent along a release explaining the fine, censure, and 12-month suspension.

“The SEC had no problem with what we feel is the most important thing — the investments themselves,” Vagnozzi said in the statement. “What they mainly had a problem with was the way we promoted them, such as offering free steak dinners as an incentive to hear about our investing strategies.”

Not exactly, said Braganca, the former SEC lawyer, who reviewed both the settlement and Vagnozzi’s news release. The SEC had a problem with Vagnozzi selling unregistered investment funds to small investors who weren’t accredited.

“He’s just dead wrong,” said Braganca of Vagnozzi’s statement. “He was selling unregistered securities. If I were still with the SEC, I’d be angry that he said this. He can’t deny the terms of the settlement.”

The Consumer Financial Protection Bureau announced the addition of an updated Consumer Complaint Database, which lets Americans see information about complaints over time. It’s easy to search — whether you have a complaint about a student loan, a car note issuer, or a credit card company, bank, or other financial product.

For years, the database has provided the public with the ability to filter complaints by date, product, issue, and company name, and search by keywords. We found over 1,000 complaints just in Pennsylvania alone.

“These powerful new capabilities allow users to gain deeper insight into changes in the location, type, and volume of complaints over time, which provides valuable context,” said CFPB director Kathleen L. Kraninger.

Since 2011, the bureau has handled more than 2.3 million consumer complaints. Complaints are published after the company responds, confirming a commercial relationship with the consumer, or after 15 days, whichever comes first. The Consumer Complaint Database is at https://www.consumerfinance.gov/data-research/consumer-complaints/.