Investigation: Customer Complaints Against Northwestern Mutual
Our law office is investigating customer complaints against sales agents of Nothwestern Mutual. We have experience handling cases involving variable annuities, negligence, fraud and theft. If you or someone you know has a complaint against Northwestern Mutual, please call us for a free a confidential consultation at 800-767-8040.
Complaint: Northwestern Mutual Representative Stole Funds
When the Financial Industry Regulatory Authority suspended Manish Shah earlier in 2021, the former Northwestern Mutual Investment Services broker already had a settled customer complaint under his belt. In the dispute, resolved in March 2019, a customer alleged he induced a fraudulent loan and converted her funds; the complaint settled for more than $145,000. These allegations formed the basis of FINRA’s action against the New Jersey advisor, in which the regulator found he improperly took a loan from a second customer as well.
According to FINRA’s findings, published in January 2021, Shah first took an unapproved loan of $75,000 from one of his brokerage customers, telling her the funds would be used to purchase a fellow representative’s “book of business.” In reality, he directed the funds “mostly for personal expenses.” In a second case, Shah borrowed $200,000 from an insurance customer without the firm’s knowledge or approval, again telling his customer the funds would be used to buy a book of business from another representative. Again he instead directed the funds “mostly to retire other debt and personal expenses.” As a result of his actions, he was terminated from Northwestern Mutual, suspended by FINRA for 20 months, and had his license revoked by the New Jersey Bureau of Securities.
Complaint: Northwestern Rep Steals More than $500,000 Via Loan Scheme
Former Northwestern Mutual Investment Services broker Sampson Pearson stole more than half a million dollars from his customers through what prosecutors described as a “fraudulent loan and disbursement scheme.” As an independent contractor for the firm, Pearson fabricated loan applications and requests for annuity disbursements using his “victims’ names without their knowledge and approval.” The firm subsequently approved the loans and disbursements, and even followed his directions to deposit the funds into his own account. He received more than $570,000 through this scheme, authorities alleged, using the money “to pay for personal expenses and to fund his lifestyle” between 2011 and 2016. In some cases, he made payments to investors using other investors’ funds. In September 2021, Pearson was found guilty of tax fraud, wire fraud, and aggravated identity theft; he is still awaiting sentencing. Northwestern Mutual Investment Services, while not charged with any crime, was hit with a Financial Industry Regulatory Authority sanction in March 2020 for failing to supervise his activities.
According to a Letter of Acceptance, Waiver, and Consent released by the regulator, the firm failed to take reasonable steps to verify that the verify that its customers controlled the bank accounts to which Pearson was transferring their funds. It also allegedly failed to conduct reasonable reviews of the annuity withdrawals by his customers, even though its electronic review systems flagged three of them. FINRA finally found that Northwestern Mutual Investment Services lacked reasonable supervisory system to review the transfer of customer funds to third-party accounts, resulting in its failure to detect 23 transfers—for a total of $473,496—to “the same bank account where [Pearson] received his Firm commissions.” Having already reimbursed Pearson’s victims, the firm was ordered to pay a fine of $350,000.
Complaint: Northwestern Rep Orchestrates $2.5 Million Ponzi Scheme
Former Spokane-based Northwestern Mutual Investment Services advisor John Charles Hanson stole almost $2.5 million from his customers in a Ponzi scheme FINRA began probing in 2014, according to the Journal of Business. An investigation by the Washington Department of Financial Institutions found that starting in 2006, Hanson “made multiple unauthorized withdrawals from several investment accounts held by two of his clients,” both of whom were his family members.
In one case, Hanson made an unauthorized withdrawal of “at least $270,000” from a family member’s brokerage and IRA accounts, forging her signature to effect a wire transfer of the funds “into her checking account, which she willingly turned over to him.” He used the funds to write checks to himself, and allegedly took $39,000 in unauthorized loans against her life insurance policies.
In a second case, Hanson allegedly solicited another family member to “to purchase $365,000 in certificates of deposit using money from her investment accounts,” transferring the funds into a bank account under his control rather than using them to purchase CDs. Because US tax code treated the withdrawals as early distributions, they caused “large tax penalties” for his relative, which she paid by taking $41,000 out of her IRA as well as “a home equity loan of $110,000.”
A third victim was an advisory client of Hanson’s who reportedly “lacked investing knowledge and relied heavily on Hanson to manage her retail brokerage account.” In 2020, he solicited her to invest $150,000 in what he represented as a friend’s investment adviser business he wished to purchase. According to the state’s report, he issued a five-year promissory note requiring monthly interest payments of 15% per annum, and “almost immediately… was late in making interest payments.”
He later solicited additional investments, issuing eleven notes totaling $910,000 in the form of checks payable to him. However, according to the report, “Hanson never had any agreements to purchase his colleague’s books of business. All of [the client’s] investment funds are unaccounted for. Around spring 2014, Hanson informed [her] that he was experiencing financial and legal issues, and would no longer be making any payments to her.”
A fourth victim was described by the Journal of Business as “a retired school guidance counselor” with minimal investment experience. Hanson solicited her to invest $292,500 in “a fictitious real estate investment trust.” According to the state report, he solicited other customers to invest a total of $527,000 in a fictitious investment from 2013 to 2014, allegedly using the funds on personal expenses.
Hanson resigned from Northwestern Mutual while it was investigating his conduct; he was later barred by FINRA and charged by federal prosecutors. In 2015 he pleaded guilty to wire fraud; in 2016, he was sentenced to 30 months in prison and ordered to pay $2.8 million in restitution.