The post-pandemic rate squeeze has produced another casualty in the premium-financed life insurance trade, with a Financial Industry Regulatory Authority panel ordering ex-broker Matthew K. Wilkes to hand $2.25 million to a Chicago family whose IUL-based strategy unwound into significant losses.
The award resolves claims filed against Wilkes and several firms where he was previously registered, including Wells Fargo, Raymond James Financial Services, FSIC and TrustFirst.
The claimants, representing the estate of Peter Apostal, alleged Wilkes had pushed a premium-financed indexed universal life insurance approach - a market-linked policy funded with borrowed money - that exposed the family to outsized risk.
The Apostals contended that Wilkes collected a "massive" commission from the arrangement and subjected the family to "extreme risk," per the award. They sought more than $9.5 million in damages, advancing claims that included failure to supervise, breach of fiduciary duty, unsuitable recommendations and negligence.
Wilkes and the family reached a stipulated award, sidestepping a full evidentiary hearing. He was found liable for $2.4 million in damages, with that figure trimmed by $150,000 that had already been paid or committed by an insurance carrier on his behalf.
Wilkes' attorney, Jamie B. Palfai of O'Hagan Meyer in Phoenix, said the IUL policy formed part of a wider estate planning approach but "fell under pressure" as interest rates climbed following the Covid-19 pandemic. Palfai added that the claimants opted to sell their policies rather than "cope with escalating collateral demands" before filing suit.
"Although Mr. Wilkes continues to believe that he did nothing wrong and had every chance at being exonerated at final hearing, a confluence of factors – not least of which being a dispute over professional liability coverage – ultimately compelled Mr. Wilkes to pursue a strategically-advantaged pre-hearing resolution," Palfai said.
He added that Wilkes is pleased to have the matter behind him and wishes the claimants well going forward.
The three-member panel of public arbitrators denied all remaining requests for relief, including punitive damages and attorneys' fees.
TrustFirst and Raymond James persuaded the panel they bore no supervisory responsibility for the conduct in question, with arbitrators stating they were "not persuaded" Raymond James had a duty to supervise the pledging of collateral tied to the financing strategy. Wells Fargo's motion to dismiss was denied, and FSIC did not appear.
Counsel for the Apostal family, Kevin Galbraith of Galbraith in New York City, said in a statement that the products were unsuitable, their risks were not properly disclosed, and the use of brokerage accounts as collateral was improper.
Wilkes, no longer registered as a broker or investment advisor, began at Chase Investment Services Corp. in 2007 and joined Wells Fargo in 2013, Raymond James in 2015, FSIC in 2017 and TrustFirst in 2019, per BrokerCheck. His registration with TrustFirst ended in 2023.
In premium-financed life insurance, clients borrow to fund IUL premiums, hoping policy credits outpace loan costs.
The model thrived in cheap-money years but buckles when rates rise. A notable case related to this involves NASCAR driver Kyle Busch's $8.5 million-plus claim against Pacific Life.
The NAIC has also tightened IUL illustration rules through AG 49 and its updates since 2015.
