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OFFICE OF SECURITIES
121 STATE HOUSE STATION
AUGUSTA, ME 04333
SUMMARY ORDER TO
CEASE AND DESIST
ALLEGATIONS, FINDINGS OF FACT, AND CONCLUSIONS OF LAW
Pursuant to 32 M.R.S.A. §§ 10602(1)(A) and 10708, the Securities Administrator reasonably believes that Respondents have been engaging in acts or practices constituting violations of the Revised Maine Securities Act, and therefore orders as follows:
New Life Corporation of
Paul E. Richard is an individual who at all times
relevant to this matter acted as a broker-dealer or sales representative for New
According to information received by the Office of
Securities, other persons besides Richard have acted as broker-dealers or sales
representatives for New Life in
New Life has solicited and offered to individuals in
New Life has agreed with Richard and other persons to
pay commissions in exchange for their efforts on New Life's behalf to effect
CGA transactions with
6. CGAs are commonly defined as contracts under which a charity, in return for a transfer of cash, securities, or other property, agrees to pay a sum of money in fixed installments over a period measured by either one or two lives. The fixed payments that a particular annuitant receives over time are referred to as an "annuity rate" and are determined according to actuarial tables.
7. New Life has marketed their CGAs as agreements whereby New Life receives money or other property from an individual in exchange for "a guaranteed fixed lifetime income for the rest of your life and the life of a loved one, with no market risks." New Life tells consumers that CGAs have a "high rate of return" and are "the perfect tool for seniors who are planning for retirement or who wish to maximize the return on their investments" with "No Investment Risk." New Life specifically markets its CGAs as having a "much higher rate of return" than if consumers left their money in a "certificate of deposit or money market fund."
8. New Life's "General Information and Disclosure Notice," provided to persons considering CGA transactions, states that CGAs "are considered to be 'exempted securities' under the Securities Act of 1933 and the Securities Exchange Act of 1934." The notice also states that CGAs "are not insurance" and "are not guaranteed" either by an insurance company, a guarantee fund or association, or a governmental agency.
9. New Life has stated that the funds it obtains through CGA transactions are "commingled for purposes of investment" and that separate accounts are generally not established on behalf of individual donors. New Life has also stated that it pools the assets it obtains from CGAs in an "Annuity Reserve Fund," and that it then invests those assets in various securities.
10. New Life's claims that CGAs are "guaranteed" and have "no market risks" are grounded solely on New Life's present ability to meet its annuity obligations from corporate assets.
In a letter dated
12. The SEC staff's position was based in part on its reading of the portion of the federal Philanthropy Protection Act of 1995 which was codified in Section 3(e) of the Securities Exchange Act of 1934. That section exempted solicitors acting on behalf of charitable organizations from broker-dealer registration requirements, but only if each of those solicitors "is either a volunteer or is engaged in the overall fund raising activities of a charitable organization and receives no commission or other special compensation based on the number or the value of donations collected for the fund."
13. The Philanthropy Protection Act specifically refers to a fund containing assets obtained from the issuance of "charitable gift annuities" as the kind of fund that exempts a company from registration under the Investment Company Act of 1940.
14. The National Association of Securities Dealers ("NASD") issued a Regulatory and Compliance Alert to its members in the summer of 2002 titled "Charitable Gift Annuities." The alert states in part that "[r]epresentatives may be told that CGAs do not require federal or state securities registration or licensing. This is false, however, if representatives will receive a commission."
Richard has represented to the Office of Securities
that New Life did not advise him that he may need to be licensed as a
securities broker-dealer or sales representative in order to legally sell CGAs
In New Life's home state of
Under the Maine Insurance Code, all products meeting
the definition of "charitable gift annuity agreements" in 24-A
M.R.S.A. § 703-A are considered "not insurance" under 24 M.R.S.A. §
703 and are thus not regulated by the Maine Bureau of Insurance. The CGAs that New Life offers in
19. The American Council on Gift Annuities ("ACGA") and the National Committee on Planned Giving ("NCPG") have jointly and publicly stated their opposition to the commission sales of CGAs. The ACGA is a nonprofit organization formed in 1927 to provide educational and other services to charities. The NCPG is a professional association for people who develop, market, and administer charitable planned gifts. Their opposition stems in part because of the potential application of securities laws and in part because such a practice violates the Model Standards of Practice for the Charitable Gift Planner, which states that commissions and other fees paid to solicitors in exchange for delivering gifts is "never appropriate."
In its initial correspondence with the Office of
Securities, New Life did not disclose the existence of its interaction with the
SEC, which the Office of Securities learned of on its own. Instead, in a
By an e-mail sent on the morning of
By letter dated
In an e-mail dated
By letter dated and faxed on
25. New Life's corporate counsel has also suggested, in a telephone message on February 6, 2003, and a telephone conversation on February 10, 2003, that if New Life chooses not to pay financial advisors who effect CGA transactions -- despite any prior agreement between New Life and those advisors regarding commissions -- then those persons would become "volunteers" not subject to the securities licensing requirement. On both occasions the corporate counsel was advised that those advisors were not "volunteers" at the time of solicitation and sale and could not be turned into "volunteers" merely by refusing to pay them after the sale had been completed.
26. Separately, Richard has represented to the Office of Securities that recently one of his clients has verbally accepted an offer to enter into a CGA agreement with New Life. In addition, the Office of Securities learned that Richard has taken steps to take control of that client's assets for purposes of funding the CGA agreement.
The Office of Securities is unaware of any other
organization that solicits CGAs from
28. The CGA agreement offered by New Life is an "investment contract" as well as "evidence of indebtedness" and is thus a security under 32 M.R.S.A. § 10501(18). The solicitation and sale of CGAs therefore involves the solicitation and sale of securities under the Act.
29. CGAs are exempt from registration as securities under the Philanthropy Protection Act of 1995 and 32 M.R.S.A. § 10502(1)(J).
Pursuant to 32 M.R.S.A. § 10301(2), it is unlawful for any
issuer of securities to employ or contract with a person as a sales
The Act has no licensing exemptions for persons selling
32. For the reasons stated above, the Securities Administrator reasonably believes that respondents have engaged, are engaging, or are about to engage in acts or practices constituting violations of the Act.
NOW, THEREFORE, it is ORDERED that New Life and Richard immediately CEASE AND DESIST from violating any provisions of the Revised Maine Securities Act, including the prohibition in 32 M.R.S.A. § 10301 against unlicensed transactions. This prohibition includes any action taken to further or finalize any pending transactions.
Pursuant to 32 M.R.S.A. § 10708, this Order is entered without prior notice or hearing. Any person named in this order has thirty (30) days from the entry of this Order to file a written request for a hearing on the matter with the Securities Administrator. The hearing will be scheduled to commence within fifteen (15) calendar days after the receipt of the written request.
If the Securities Administrator does not receive a written request for a hearing within the time specified, the Order will become permanent and the person(s) named in the Order will be deemed to have waived all rights to a hearing. Pursuant to 32 M.R.S.A. § 10709, a party may obtain judicial review of a final order in Kennebec County Superior Court by filing a petition within thirty (30) calendar days after receipt of the order, in accordance with 5 M.R.S.A. § 11001 et seq. and Rule 80C of the Maine Rules of Civil Procedure.
Christine A. Bruenn
Bonnie E. Russell
Supervisor of Enforcement
Michael W. Atleson
(licensed in NY and MA, pending in ME)