Articles Posted in Annuities and Insurance

Addressing the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission maintains that a lower court was wrong to deny the agency’s bid to compel the Securities Investor Protection Corporation to act on behalf of investors who were victimized by the Allen R. Stanford Ponzi scam. Thousands of investors sustained losses as a result of the scheme. Meantime, Stanford is serving 110 years behind bars for running the $7 billion scheme that involved certificate of deposit sales issued by his Stanford International Bank in Antigua.

“Stanford Securities was a Houston-based firm which sold uninsured CD’s issued by foreign firms to investors all over the world,” said Texas securities fraud attorney William Shepherd. “Its founder was tried for securities fraud in a Federal Court and was sentenced to what will be a lifetime without parole in a federal penitentiary. Little has been gotten back by investors who, unlike the victims of the Ponzi scheme perpetrated by Barnard Madoff, have not been able to recover up to a maximum of $500,000 each from SIPC.”

It was last summer that the U.S. District Court for the District of Columbia noted the preponderance of the evidence standard and found that investors that had bought CD’s from Stanford’s Antigua bank were not, under the meaning of the Securities Investor Protection Act, “customers” of Stanford Group Co., which was Stanford’s brokerage firm in the US. Had that court ruled otherwise, SIPC would have to start liquidation proceedings for the broker-dealer and some 21,000 Stanford CD purchasers could have sought reimbursement through SIPC claims.

Two men are accused of Texas securities fraud involving the sale of bogus annuities to the elderly. The authorities arrested Leon Randy Sinclair III, a 53-year-old Houston man, on charges of theft by deception, misapplication of fiduciary property, and money laundering. Sinclair and his San Antonio-based business partner, Luther Pierce Hendon, allegedly transferred money from the investment policies into their own bank accounts.

Dozens of elderly persons were reportedly bilked out of their life savings while the two men allegedly stole millions of dollars. The elderly clients were sold charitable gift annuities that they thought would go toward their savings for the future. Unfortunately, per the criminal complaints filed against Hendon and Sinclair, the money they were investing actually went to the two men.

Annuities

Thousands have lost in investments into annuities issued by AXA Equitable Life Insurance Co., Nationwide Life Insurance Co., AIG SunAmerica Life Assurance Co., and Variable Annuity Life Insurance Co. A class action was filed on these investors’ behalf, but, as has happened to millions of investors in the last decade, they have now also become victims of Congress and the courts.

Investors who do not “opt out” of class actions in securities cases can severely harm their chance of ever recovering. It may be best for those with small or weak claims to let the class action lawyers get rich, while only sending them a few “pennies on the dollar” (The average securities class action produces less than 10% net recovery to investors). It is better than nothing, but those who lost hundreds of thousands or millions of dollars should consult an attorney of their own. It is also best if they go to one who will not charge them to review their options.

State securities laws, along with claims for fraud, negligence, or breach of contract and fiduciary duty, are usually the best route to recovery for investors. However, Wall Street has managed to persuade Congress to confine securities class actions to the Federal Securities laws and to gut investors’ rights under these federal laws. Fortunately, investors can take action under state laws.

Broker-dealers are getting ready to cope with a new rule governing deferred variable annuities (VAs) sales.

Rule 2821 by the Financial Industry Regulatory Authority Inc. was finally approved by the Securities and Exchange Commission on September 7. The rule has been in the works since 2004. The official regulatory notice, to be issued this week, gives brokerage firms six months to comply. The rule is expected to go into effect in May or June 2008.

Rule 2821 has four provisions regarding the sale of deferred variable annuities and the exchange of variable annuities. The rule places a suitability requirement on products for sales. It also makes it mandatory for principals to look at transactions within seven business days and before a customer’s application is forwarded to an insurance carrier.

According to the Government Accounting Office (GAO) Americans over 65 hold more than $15 trillion in assets and, with “Baby Boomers” soon reaching retirement age, that figure will likely balloon. As financial firms, including insurance companies, design products aimed at this pot of gold, scam artists lick their chops for a piece of the action. Unfortunately, their paths cross.

As we very recently reported, a federal judge in Hawaii dismissed a class action suit against Midland National Insurance saying that, because different sales pitches were used by different salespersons, the claims by elderly Hawaiians can not go forward. Meanwhile, regulators warn that scam artists are selling insurance products to the elderly. Thus, it appears that insurance companies can simply look the other way while con artists victimize the elderly using their annuities. [OUR FIRM PURSUES CLAIMS ONE AT A TIME TO AVOID THIS PROBLEM.]

A NY Times article today reports that a Massachusetts insurance agent became a “certified senior adviser” then advertised this and other credentials to retirees. Yet, he did not mention how easily he received that title: He paid $1,095 for a correspondence course, then took a multiple-choice exam with dumbed-down questions. The agent, and over 18,700 other applicants since 1997, passed the course.

A judge in The U.S. District Court in Honolulu ruled that those who lost in annuities cannot bring a class-action suit against the annuity insurer, despite potential misleading and deceptive actions by the insurance firm. [Yokoyama et al. vs. Midland National Life Insurance Company.]

Lawyers representing the plaintiffs in the case alleged the defendant, Midland National Life Insurance Company, sold elderly Hawaiians inherently unsuitable, deceptive indexed annuity products that were designed to hide the true cost of an early contract cancellation.

The court cited two reasons it denied the class action against Midland. The first was that, whether or not Midland’s actions were misleading or deceptive, different sales pitches by different insurance salespersons were made to those purchasing the annuities, therefore the investors did not have similar claims. The second, said the judge, was that the losses were not caused by the alleged misleading actions, but by changes in the securities market.

The National Association of Securities Dealers has issued an “Investor Alert” warning of a rise in deceptive sales practices in the sale of annuities to senior citizens

The NASD also states that consumer confusion about annuities has also risen. “This is due, in part, to questionable or deceptive sales practices employed by companies and agents looking to take advantage of uninformed consumers,” it adds.

An “annuity” is defined in the release as “a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid.”

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