New Jersey broker David Steven Forman has been barred by the Financial Industry Regulatory Authority (FINRA) following allegations he ran an insurance scheme involving the sale a $5 million life insurance policy to a trust, which Forman - a former representative with the Private Consulting Group - then allegedly took control of. Forman didn’t admit nor deny FINRA’s finding, but consented to the regulator’s decision to ban him from the securities industry.

According to FINRA, Forman and another unnamed person netted nearly a $1 million from the scam.

As reported March 3 by Investment News, the case is similar to the action cited in a Illinois civil suit filed against both Private Consulting and Forman in 2000 and settled in 2008.

According to that lawsuit, Forman and an associate, Alan Gottlob, recommended that Ken and Norma Spungen buy a $5 million life insurance policy on Mrs. Spungen, with the idea to use the policy as a way pay taxes upon her death. In order to buy the policy and leave it to the benefit of her descendants, records show that Forman and Gottlob suggested that Mrs. Spungen created an irrevocable trust.

Through 2001 and 2002, the trust paid some $501,400 in premiums on the policy, according to the lawsuit. The following year, Mr. Spungen allegedly asked Forman and Gottlob if it made sense to continue paying on the premiums for the policy, in light of upcoming changes to estate tax laws. Allegedly, the two men recommended a sale of the policy for the benefit’s trust, selling it to Coventry First LLC for $900,000 plus a commission.

The Investment News article says that Forman and Gottlob did not advise Mr. Spungen of the sale and, instead, pocketed the proceeds. The client also alleged that the signed documents showing Mr. Spungen gave the men permission to keep the proceeds were fake. The case was settled for $506,000, according to Finra records, and dismissed in 2008.

Both Forman and Gottlob have been named in other civil suits.