Taryn Phaneuf Aug. 26, 2016, 7:51pm

LOS ANGELES – A key MetLife policy that prohibits insurance agents from referring clients to anyone selling unapproved securities should have pulled the plug on any referrals to Diversified Lending Group for premium financing, but corporate manuals didn’t instruct supervisors and agents on how to identify which products were off limits, according to testimony in the trial against MetLife.

Throughout the trial, investments in DLG, an allegedly fraudulent real estate investment fund, primarily have been referred to as purchases of promissory notes. Such notes refer simply to a signed document that includes a written promise to pay someone, including the terms of that payment. A security, however, is a certificate with monetary value, such as stocks, which are regulated by the U.S. Securities and Exchange Commission.

Variable products, like securities, are closely scrutinized at MetLife, James Fago, who worked as an assistant vice president for field controls unit, testified.

“There is a high barrier to entry for products that are variable in nature,” Fago said.

James Davidson, a former insurance agent with the MetLife subsidiary who referred clients to DLG, testified in a deposition, which was read in court, that he knew about the policy that stopped him from referring clients to anyone selling securities that MetLife didn’t offer or hadn’t approved. He also knew that MetLife policy and procedure materials indicated that promissory notes are often securities, but he didn’t make the connection with the premium financing option at the time, which he thought was approved by MetLife.

“I thought, I’m just selling life insurance. What they do over there with DLG, that’s up to them,” he said.

Davidson believed it was approved because it was introduced by his supervisor, Tony Russon, who previously testified that he didn’t consider the DLG notes securities. That prevented him from seeking approval from corporate MetLife before allowing his insurance agents to refer business to Bruce Friedman, the owner of DLG. Later, referrals were made to Scott Brandt, one of Russon’s contracted agents who surrendered his securities license to work for DLG.

Fago testified that Scott Brandt’s work with DLG as an outside business activity – and Russon’s approval of it – was “an inappropriate procedure.” But MetLife compliance materials, which require supervisors and agents or brokers to know the definition of a security, don’t offer criteria to help them determine if a product actually is a security.

Following Fago’s testimony, the defense briefly recalled witnesses, reading portions of depositions and further questioning Brandt. Closing statements in the case began Thursday.

The case is being heard in Los Angeles County Superior Court and began July 20. Webcast coverage is being provided by Courtroom View Network.

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