By Steven A. Morelli
Alan S. Lewis had to speak up on the phone as he described his former annuity business, because jail is very noisy.
Lewis sold annuities in Riverside County, Calif., until the economic crash and personal issues moved him along to Tennessee in 2009. He returned to California in 2014 in handcuffs to face 36 felony counts of embezzlement, grand theft and burglary.
“The first public defender I had didn’t look at the case, but she said, ‘You’re looking at close to 40 years in prison,’ ” Lewis said. “‘The DA wants 20 years prison time out of you, and they may be willing to do that if we can negotiate that.’ I said, ‘For what?’ ”
He is accused of selling fixed index annuities with a surrender charge.
Specifically, the prosecutor alleged Lewis induced 12 seniors into surrendering individual retirement accounts or annuities for a “less favorable” annuity, according to court documents. The clients incurred a surrender charge that Lewis promised would be offset by the bonus of a replacement annuity.
“Defendant Lewis was aware that the bonus was elusive, but misrepresented the same to the victims,” according to the preliminary hearing brief. “In any event, in a mere three years after replacing the last annuity, defendant would return to the annuitant and persuade him or her by false pretenses to replace the existing annuity.”
The brief alleged Lewis committed “twisting” and caused seniors to lose more than $300,000 in surrender penalties. He was charged with 36 felony counts of willfully embezzling from an elder for an amount exceeding $950, grand theft in excess of $400 and burglary. The prosecutor argued that the surrender penalties constituted embezzlement and theft, and because Lewis did some of the transactions at the clients’ homes, he also committed burglary.
Superior Court Judge Bernard J. Schwartz allowed 29 of the felony counts and one misdemeanor to go to trial and dismissed the others for jurisdictional reasons. Lewis is in jail in lieu of $600,000 bail and scheduled to go to trial on June 23 to face 19 felony counts and one misdemeanor count of embezzlement, eight felony counts of burglary and two felony counts of grand theft.
Even after a preliminary hearing that lasted several days, Lewis said he still doesn’t understand the case against him. He said he thought the new annuities were a better deal for his clients. He even agrees that the bonus in the second annuity wasn’t as attractive as it initially appeared. So, he advised some clients to move to a third annuity.
As Lewis sees it: The annuities were approved by the state. The sales were overseen by wholesalers and the insurance companies. Clients were sent notices advising them of the surrender charges. Lewis did not pocket money he was not entitled to. So, if anybody had any questions about the sales, why wouldn’t that be a complaint that included all the entities involved and why would it not be an administrative case for the state Department of Insurance?
That is a question some industry observers share about the criminal charges. While not speaking to the details of the case or defending all of Lewis’ actions, they are concerned about the precedent of a felony conviction for what would usually be an insurance department matter. If Lewis is convicted of embezzlement, theft and burglary, would that put any agent in jeopardy?
Kim O’Brien, president and chief executive officer of the National Association of Fixed Annuities (NAFA), said not only are agents at the risk of prison for selling annuities, the public would be deprived of products designed to protect their retirement.