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California Shuts Down Annuity Sales Scam

Salesmen posed as lawyers, preyed on vulnerable seniors

December 21, 2007

“These companies tricked senior citizens into buying annuities that would not pay out for years and had substantial early withdrawal fees -- investments that made no sense for elderly people,” said Attorney General Edmund G. Brown Jr.

The multi-million dollar settlement resolves a lawsuit filed in 2006, which alleges that the companies tricked senior citizens into buying annuities -- long-term financial vehicles with high penalties for early withdrawal.

The annuities offered the possibility of future payments, but only after a lengthy surrender penalty period. Such annuities are generally acquired as long-term investments for future retirement income and not considered wise vehicles for seniors’ savings.

'Estate planning'

Under the scheme, Family First sent sales representatives, who were not authorized to practice law, to senior citizens’ homes to provide legal advice on estate planning.

At no time during the initial solicitation or the home visits did Family First disclose that their ultimate goal was to sell annuities. After preparing the living trust documents the agents returned to the seniors’ homes -- under the guise of acting as their financial or estate advisors -- and induced the seniors to move their liquid assets into annuities.

The representatives did not disclose that seniors would be unable to withdraw more than the specified amounts while waiting for the investment to mature -- sometimes up to 15 years -- without incurring substantial penalties.

The scheme, known as a Living Trust Mill, is a growing threat to senior citizens who are lured by the free seminars and sales agents who pose as financial or legal experts.

The settlement requires American Investors Life Insurance and the Family First companies to pay $1 million in civil penalties and distribute $5.5 million to consumers who purchased the annuities through Family First and incurred surrender penalties.

In addition, American Investors Life Insurance must waive surrender penalties when consumers present evidence of a significant financial hardship and let consumers redeem the annuities, without surrender charges, in the form of monthly payments.

Consumers who have not already received a credit for 55% or more of future surrender charges will have an opportunity to receive the value of their annuities in monthly payments along with a bonus of either 1% or 1.25% of their principal investment.

Out of business

The judgment forces Family First Insurance Services and Family First Advanced Estate Planning to permanently cease all business operations.

It also bars American Investors Life Insurance Services from soliciting seniors without revealing that the consumer will be propositioned by an insurance agent.

American Investors is no longer permitted to make false or misleading statements about the terms of any annuity or insurance policy and they must disclose all charges that may be incurred when redeeming an annuity. The defendants are also prohibited from engaging in the unauthorized practice of law.

More about annuities ...

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