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California Program Pays to Prosecute Life and Annuity Agents

By Steven A. Morelli
InsuranceNewsNet

Why does California seem to go after annuity agents so aggressively? That’s been a question often asked after two criminal prosecutions in cases that could have been insurance department matters.

The state’s Life & Annuity Consumer Protection Program might be a factor. It is a Department of Insurance initiative that pays county district attorneys to prosecute life insurance and annuity agents. The program appears to be the only one of its kind in the nation, according to the National Association for Fixed Annuities.

Riverside County, which is prosecuting Alan S. Lewis on 29 felonies for annuity sales, applied for and received funding to pursue a case that seems to describe the Lewis case. In fact, Riverside County has been an active participant since the program started paying prosecutors in 2006, collecting $371,000 since then. The fund pays for personnel, such as attorneys and investigators, and expenses for prosecution and informing the public about life insurance and annuity fraud.

It is difficult to identify pending cases in the county’s annual request for funding because the details were blacked out before the state released the documents. But in the Riverside County district attorney’s cover letter to the request, a pending case was described as involving “many victims and a high loss amount.” The letter was dated May 10, 2012. In the next grant application, dated May 10, 2013, the district attorney said, “We request that this amount be carried-over in Fiscal Year 2013-2014, as we anticipate the further investigation and ultimate prosecution of both a new investigation received from the Department of Insurance and a new case currently in the process of being filed, in addition to any new investigations that may be referred to our Program during the next fiscal year.”

On Oct. 24, 2013, the district attorney filed 36 embezzlement, grand theft and burglary felony charges against Lewis, three days before the statute of limitations kicked in. The prosecutor accused Lewis of selling more than one annuity to 12 seniors, incurring $300,000 in surrender charges. He was charged with burglary because he had visited the clients in their homes. He is in jail awaiting trial on June 23.

Also in the 2012 request, Riverside Chief Deputy District Attorney Vicki Hightower wrote: “In addition, through our continued outreach efforts with the Department of Insurance and other agencies, we anticipate additional investigations will be referred to our Program during the next fiscal year.”

In those sessions, which are typically conducted by an assistant district attorney and at least one Department of Insurance investigator, seniors are given pamphlets and shown videos, one video in particular. This was also in the funding request paperwork: “As we do at all outreach sessions with audio/video capability, we were able to show the Annuities - It's Your Choice video provided to us by CDI, and the attendees seemed to learn from and enjoy the video.”

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That video, provided by the insurance department, provides many warnings about annuities and features an actor playing a particularly smarmy insurance agent. After the warnings about the complexity of annuities, surrender charges are the first key danger discussed before the reenactment with the actor playing the unscrupulous agent. The “con” starts at a seminar and moves to the apartment of one of the seniors later on.

Those sessions are also subsidized by the program, which is funded by a $1 fee on every insurance sale in California. Half goes to the Department of Insurance for public information, such as videos, and investigations. The other half is given to district attorneys as annual grants that the counties must apply for.

The state collects an average of $861,000 annually, but the insurance department wants $1.5 million for its activities, according to a state senate bill analysis. That analysis was for SB 476 in 2013, which eliminated the sunset for the program and also expanded the $1 fee to all life insurance and annuity transactions. Previously, annuities valued under $15,000 were exempt, but the department said that eliminated 76 percent of all annuities from the fee. The bill was approved by committee and the legislature and became law. The program no longer has to be reauthorized.

The Life & Annuity Consumer Protection Program became law in 2004 in response to a perception of widespread annuity fraud, which was described in a hearing in 2003. The program began funding outreach and prosecutions in 2006. Riverside and other counties started getting money that first year.

Lake County was late to the funding, but it applied for a $32,885 grant in 2012 and cited its work in prosecuting the Glenn Neasham case. Neasham was an annuity agent who was charged with theft for selling an annuity to an 83-year-old woman who was later said to be suffering from dementia. Although Neasham and two of his assistants said they did not see signs of cognitive impairment, he was convicted of felony theft in 2011. Neasham lost his insurance license, his business and his house.

Neasham’s conviction was eventually overturned -- and ridiculed -- by an appellate court. The state Supreme Court had the original opinion “depublished,” a rare request to prevent the conviction from being used as precedence.

But the case still served as a model. The prosecutor used the program funding to spread the word. In its year-end program report in 2012, the prosecutor wrote, “Throughout the year, the grant prosecutor and investigator spoke to various law enforcement agencies regarding the Neasham case.”

The Lewis case will involve a long trial, if the six-day-long preliminary hearing is any gauge. Lewis has a public defender who is a trial lawyer accustomed to street crime rather than complicated financial prosecutions. The district attorney's staff has been trained for several years and have resources provided by funding from the state program.

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Lewis’ lawyer, the Riverside County district attorney’s office and the state Department of Insurance have not returned calls for comment.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

© Entire contents copyright 2014 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.



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