Texas Insurance Firm Defrauded 57,000 Military Personnel

August 5, 2006
The Securities and Exchange Commission has filed suit against a Waco, Texas, insurance company and its affiliates for targeting American military personnel with a deceptive sales program that misleadingly suggested that investing in the company's product would make one a millionaire.

Since 2000, approximately 57,000 members of the United States military services purchased the product. The vast majority earned little or nothing on their investment.

The complaint, filed in the United States District Court for the Southern District of California, charged affiliated entities American-Amicable Life Insurance Company of Texas, Pioneer American Insurance Company, and Pioneer Security Life Insurance Company (together, American-Amicable), all based in Waco, Texas, with securities law violations.

American-Amicable has agreed to settle the action by paying $10 million to the approximately 57,000 military personnel who invested in the product sold as an investment known as "Horizon Life."

The settlement is part of a global settlement of claims brought by the Commission, state insurance regulators led by the Georgia Department of Insurance and the Texas Department of Insurance, and the United States Attorney's Office for the Eastern District of Pennsylvania.

The settlement with the other regulators will provide additional relief, which the other regulators value at approximately $60 million. In the agreed settlement, the company has neither admitted nor denied the Commission's allegations.

Under the settlement, American-Amicable will discontinue sales of Horizon Life and will terminate the deceptive sales program, which it called the "Building Success" system.

Unlike insurance products legitimately offered to a wide range of potential buyers with a potential interest in the insurance features of those products, Horizon Life was targeted at military personnel who had little or no interest in insurance because they already were provided access to low-cost insurance sponsored by the government. Instead, American-Amicable represented Horizon Life to military personnel as a security and a wealth-creating investment.

As a material element of its marketing, American-Amicable senior staff trained its sales agents to hold themselves out as "financial advisers" or "financial coaches." Purporting to play that role, the sales agents then misled military personnel to believe they could become millionaires if they invested in Horizon Life.

At the same time, the agents denigrated other investment alternatives, claiming that mutual funds, bank savings accounts and government bonds were not sensible investments compared to Horizon Life.

Although the written materials ultimately provided to investors apparently accurately described the Horizon Life product, the company's deceptive sales pitch did not. Contrary to the representations, the overwhelming majority of military personnel who purchased Horizon Life earned little or nothing from their investment.

Linda Chatman Thomsen, Director of the Commission's Enforcement Division, said, "These defendants targeted their sales efforts at the young men and women who are putting their lives at risk serving our country. These investors deserved the honest and forthright disclosures mandated by the federal securities laws, not the deceptive sales pitch that was designed specifically for them."

The Commission's complaint charges American-Amicable with violating Sections 17(a)(2) and (3) of the Securities Act of 1933, an antifraud statute. Without admitting or denying the allegations, American-Amicable has agreed to be enjoined from further violations of these provisions, and to pay disgorgement of $10 million, which will be distributed to the affected investors.

In related matters, Georgia Insurance Commissioner John W. Oxendine and Texas Insurance Commissioner Mike Geeslin announced a multi-state settlement with American-Amicable alleging violations of state insurance and consumer protection laws, and U.S. Attorney Patrick L. Meehan of the Eastern District of Pennsylvania announced the filing of a complaint, settlement and proposed consent decree with American-Amicable alleging civil claims of wire and mail fraud.

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