Financial Adviser Loses License Over Funeral Trust Fund Losses
March 14, 2009 – A Merrill Lynch financial adviser in Springfield has temporarily lost his state license, as Illinois regulators continue to investigate investment losses in a $300 million trust fund that held consumer deposits for pre-paid funeral agreements.
The Illinois Secretary of State suspended Edward L. Schainker on Feb. 24, charging that he violated state securities laws in his role as an investment adviser to the Illinois Funeral Directors Association.
Calls to Schainker’s Springfield office and his attorney, Carl Draper of Springfield, were not immediately returned.
A Merrill Lynch spokesman declined to comment on Schainker’s suspension but said the company is cooperating with the state officials and will continue to do.
The IFDA is under investigation after the trust it controlled had a deficit of more than $50 million last year. More than 49,000 Illinois residents have accounts in the trust to pay for their funerals in the future. Because of the deficit, some consumers may have pay more for their services when they thought no other funds would be necessary.
As part of their investigation, regulators are looking into insurance policies that make up the bulk of the trust’s investments. The policies have severely impaired the liquidity of the trust, according to the Department of Financial and Professional Regulation.
The secretary of state said Schainker recommended and sold more than 300 insurance contracts to the IFDA, including more than 120 policies issued by a Merrill Lynch affiliate. Schainker received a commission for each sale, the suspension order said.
The order also alleges that Schainker’s recommendation of the insurance policies was “unsuitable” for the trust and violated state securities laws.
Under the order, Schainker is prohibited from acting as an investment adviser or selling securities. He has been registered as broker with Merrill Lynch since March 1, 1983, according to Financial Industry Regulatory Authority Inc.
The State Journal-Register in Springfield first reported Schainker’s suspension.
Schainker and Merrill Lynch were named as defendants in a lawsuit filed in January by six Illinois funeral directors, accusing current and former officers of the IFDA of mismanaging the trust.
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