December 11, 2014
From 2008 through 2010, brokers across the country coalesced in selling a high-premium insurance product known as Diversified Lending Group, or DLG. According to the Financial Industry Regulatory Authority (FINRA), DLG was nothing more than a Ponzi scheme that stemmed from former Sherman Oaks money manager Bruce Fred Friedman. While he was awaiting trial for the $228 million he caused in losses, Friedman sat in a French prison and later died in 2010. However, in an effort to reap the benefits of high commissions, several brokers continued to sell DLG even after it was exposed as a Ponzi scheme. According to FINRA, broker Steve Corzan sold millions of DLG securities to clients that were recommended from broker Brian Weinstock. After the scheme collapsed in 2010, Corzan’s clients were left with nothing.
Weinstock is a California resident, previously employed at Northwestern Mutual Investment Services, LLC. According to a FINRA Complaint, Weinstock referred to many of his clients as “white elephants” and recommended these clients to Steve Corzan of Lighthouse Capital Corporation. In June of 2008, Weinstock recommended 22 clients to Corzan and in return received $15,500 for arranging the introductions. Knowing the introductions were a violation of FINRA rules, he concealed the activity from Northwestern Mutual. After learning of the conduct, Northwestern Mutual terminated Weinstock in September of 2010.
DLG was promoted as a private placement security offering guaranteed returns from nine to twelve percent. An investor could purchase notes from DLG, and DLG would submit the investor’s earnings directly to the insurance company instead of sending them to the investor. According to Weinstock, this differed from traditional premium financing arranged through a bank. When someone obtains a loan to pay premiums, insurance companies require the person to file a disclosure that premiums will be paid with borrowed funds. However, insurance companies would not require a customer paying premiums with proceeds from an investment, such as DLG, to file a loan disclosure when applying to purchase an insurance policy. This loophole allowed DLG to be sold with little supervision resulting in over $228 million in losses.
Steve Corzan has been permanently barred from acting as a broker or otherwise associating with firms that sell securities to the public. For recommending clients behind Northwestern Mutual’s back, Weinstock is facing charges and fines from FINRA.
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