LOS ANGELES – In the first week of testimony, attorneys representing Christine Ramirez in the lawsuit against MetLife and its subsidiary have pointed to years of contracts, emails and scheduled seminars, trying to convince jurors that the insurance giant failed to properly train and supervise its representatives who allegedly promoted a fraudulent investment fund, making it responsible for investors’ losses.

In 2008, Ramirez invested nearly $280,000 in a real estate fund by Diversified Lending Group (DLG), which guaranteed a 12 percent return and was introduced to MetLife insurance prospective customers as a way to finance insurance. Ramirez didn’t purchase insurance, but she invested in the fund, pooling money from her retirement account and personal savings and borrowing against her home. A year later, DLG collapsed and was raided by the U.S. Securities and Exchange Commission.

Ramirez is one of several investors suing MetLife and a California subsidiary, claiming they presented DLG as a safe investment. 

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

Over four days, the plaintiff's attorneys called three witnesses who were employees of the various companies involved.

Lawrence Bagby, a former insurance agent at a MetLife subsidiary managed by Tony Russon, who is also named in the lawsuit, testified that he attended a meeting in 2004 that introduced him and other agents to a premium financing option that would be available to customers.

Bagby was fired in 2009 for breaking company policy because of his role in promoting DLG.

Under the program, customers could invest in DLG by borrowing against their homes. Bagby said he understood that returns on the investment could be used to pay MetLife life insurance premiums. However, this arrangement was never formally approved by MetLife. Bagby said he believed it was approved because it was presented at a meeting for MetLife insurance agents with approval from Russon, their supervisor.

However, the agents allegedly didn’t know the manager of the fund, Bruce Friedman, was a convicted felon with a history that included bankruptcy. After the SEC raided DLG in 2009, Friedman fled to France, where he fought extradition. He died in a French prison.

Friedman had a previous business relationship with Russon and owed him $750,000, according to court documents. In attempts to repay that money, Friedman had bounced five checks, all for $300,000.

Bagby said if he’d had that information when the program was introduced, it would have raised doubts in his mind about Friedman’s trustworthiness.

“There’d be a lot of questions I’d want to ask,” he said. “It would have got my attention for sure.”

Bagby didn’t sell DLG notes himself. Instead, he referred clients to Scott Brandt, a former co-worker who resigned so he could sell DLG. Bagby explained that he would introduce the premium financing concept to clients and, if they showed interest, he would refer them to Brandt. On one occasion, the two put on a seminar at a country club to present the DLG fund to clients. He testified that Russon never objected to his efforts to promote DLG to his insurance clients. He was unaware of a 2005 corporate MetLife memo that prohibited agents from being involved with investment schemes that encouraged customers to borrow against their home, like the DLG program did.

He testified that even if he'd seen the memo, it probably wouldn't have affected his work introducing clients to DLG because he learned about it at a MetLife-related meeting with his supervisor's approval. He believed he was working in the best interest of the company by offering this premium financing.

"We were selling life insurance and long-term care, which are two products of the MetLife enterprise," he said.

Diane Cano, president of Applied Equities Inc. (AEI) – a company owned by Friedman that assisted in paying insurance premiums for DLG investors – testified that she first became connected to MetLife and Russon’s group through a proposed long-term care insurance program that never really got off the ground.

Cano had a brief personal relationship with Friedman, and she invested in DLG.

She said that, to her knowledge, MetLife never did a background check on AEI or its owner before approving the program, which was referred to in court as Visiting Angels – a franchised long-term care agency. Discussions about the program started at the beginning of 2004. By the end of that year, DLG presented its premium financing program to insurance agents at the MetLife subsidiary supervised by Russon.

Also during that time, Cano became a licensed insurance agent and a registered representative in Russon’s group so she could help rollover retirement accounts of people who wanted to invest in DLG.

“If individuals wanted to roll their 401(k) into the DLG program, they were able to do that,” she said.

Using responses to questions, MetLife’s attorney, Sidney Kanazawa, drew a diagram of Cano’s link to each of the companies involved in the suit, demonstrating that her work for Friedman was kept separate from her status as a registered representative and insurance agent working under Russon and, by extension, for MetLife. She never sold insurance or securities for MetLife.

Her work with AEI was considered “outside activity,” Kanazawa said, reinforcing his point from his opening statement July 20 that, by engaging in outside activity, those responsible for promoting investment in DLG were outside of MetLife’s supervisory responsibility.

Cano confirmed that no DLG material mentioned either MetLife or its subsidiary. However, she couldn’t recall any effort to train agents on how to clarify the distinctness of the insurance and investment transactions.

Attorneys also questioned Jean Philipp, who worked in MetLife’s corporate ethics and compliance division during the years before DLG’s collapse. One of her roles was reviewing potentially fraudulent sales concepts. In 2006, a request for premium financing involving DLG came across her desk in the form of a declined application.

The fact that she received the declined case didn’t necessarily equate to an accusation of fraud, she said. Still, the application raised questions that led Philipp to spend the day reviewing the facts and looking into DLG and its owner.

“There’s nothing inherently fraudulent with premium financing. I just had a hard time making sense of the arrangement,” she said.

She sent the details of her review, as well as the results of a background check of Friedman, to her boss and his boss. The background check showed Friedman had tax liens against him and revealed bankruptcies. It didn’t include criminal history.

Despite the questions, no formal investigation was launched.

“The case was declined, so the company was not at risk,” Philipp said in response to a question about why the matter wasn’t pursued further.

Three years later, the fund collapsed. An attorney for Ramirez pointed out that though the first application – the one that launched Philipp’s inquiry – was declined, a second application for the same individual by the same insurance agent was approved later. It didn’t raise any red flags the second time, but the billing address reportedly matched DLG’s offices in California.

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