Merrill Lynch OKs $18 Mil Funeral Trust Deal, But Admits No Wrongdoing
Merrill Lynch & Co. has agreed to pay $18 million to end a State of Illinois investigation into its role in the erosion of a trust that was supposed to safeguard consumer deposits meant to pay for their funerals. The settlement, announced Wednesday by the Illinois Division of Insurance, will benefit more than 600 funeral homes that sold prepaid funeral plans to consumers and deposited the money in a trust created in 1980 by the Springfield-based Illinois Funeral Directors Association.
The trust, however, had a deficit of more than $50 million last year, which regulators have blamed on the trade group’s investment strategy, interest rate policies and its excessive management fees. The deficit in a trust once valued at $300 million created potential losses for funeral homes that sold consumers the promise of buying something for tomorrow at today’s prices.
According to the Insurance Division, Edward Schainker, a Merrill Lynch broker in Springfield who advised the IFDA, “developed, marketed and sold a scheme” to invest a significant portion of the trust funds in complex life-insurance policies. Some were issued by a Merrill Lynch life insurance unit, which received more than $32 million in premiums, according to state regulators.
The policies were purchased on the lives of IFDA members, which does not satisfy the state’s insurable-interest requirements, the agency said. In addition, the policies have harmed the trust because the death benefits cannot be timed to meet the revenue needs of funeral homes, said Michael McRaith, director of the Insurance Division.
The agreement alleges that Merrill Lynch violated the state’s insurance laws by failing to properly monitor Schainker’s activities, McRaith said. Under the deal, Merrill Lynch did not admit to any wrongdoing.
The $18 million will be shared based on sales of prepaid plans. More than 47,000 consumers have prepaid plans, also known as pre-need contracts. About 70 percent of the contracts contain price guarantees for caskets, embalming and other services.
cooperschoffcpa400x75.gifFuneral homes expect to lose money on the guaranteed contracts because of the trust’s deficit, which could force some to go out of business. The Merrill Lynch settlement fund will help offset some of the potential losses, McRaith said.
A Merrill Lynch spokesman said, “We’re participating in this resolution so that we can be a part of ensuring that families get the services they have paid for.”
The Insurance Division on Wednesday also said it will seek to revoke Schainker’s insurance license and fine him $100,000, the maximum penalty allowed under Illinois law. The secretary of state’s office also has suspended his broker’s license.
Schainker plans to contest the order, said Carl Draper, one of his attorneys.
Source: Chicago Tribune, firstname.lastname@example.org
Latest posts by CDFuneralNews (see all)
- FrontRunner Professional Announces Software Integration with Google Calendar - February 21, 2018
- Legacy Funeral Group Purchased Magnolia Chapel in Tuscaloosa, Alabama - February 21, 2018
- Homesteaders Policy Owners Elect Three New Members to Board of Directors - February 20, 2018
You may be interested
This Is The Game Every Funeral Director Wants, But It’s Not RealRyan Thogmartin - February 21, 2018
Cadaver Chris needs your help! His viewing is tomorrow! It's Embalmer, the funtacular funeral game where you're the embalmer! From the gurney to the grave, it's Embalmer! Embalming fluid not included.
FrontRunner Professional Announces Software Integration with Google CalendarCDFuneralNews - February 21, 2018
Today FrontRunner Professional announced the release of Eventify, a native integration between their award-winning Pulse Business System and the Google…
Legacy Funeral Group Purchased Magnolia Chapel in Tuscaloosa, AlabamaCDFuneralNews - February 21, 2018
(Houston, TX) Legacy Funeral Group announces the acquisition of Magnolia Chapel Funeral Homes in Tuscaloosa, Alabama. The expansion comes just…