A long-simmering case of an apparent $29 million insurance fraud centered in Nebraska has only made local headlines so far, but the fact that many of these accounts are street-level households makes the allegations especially egregious.
A Grand Island, Nebraska shop called First Americans Insurance Service was already forbidden to sell its structured notes -- which carried a coupon of 14% to 18% -- after 2007, but seems to have gotten around the restriction by selling through intermediaries.
Local reps from Florida broker-dealer/RIA Transamerica Financial Services were then tapped to sell the securities as intermediaries, collecting a commission in the process.
It appears that a pyramid scheme of some sort was involved, because First Americans imploded by early 2009.
Now a few of the roughly 250 Nebraskans who invested $29 million in the notes -- that's about $116,000 apiece -- have filed for arbitration against Transamerica, arguing that the securities were so toxic that Transamerica must've been "asleep at the wheel" in putting them on the shelf to begin with.
This case may test current assumptions about just what constitutes due diligence these days. In the wake of the Securities America disaster, where everyone swears up and down that they did their homework, it might be good to get that issue out in the open.