The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
For other articles and background on the Alan Lewis case, visit this page. This is the first article, with background.
By Steven A. Morelli
A California judge threw out 29 felony charges and one misdemeanor against a former insurance agent who spent more than four months in jail awaiting trial in a case that some said could lead to criminalizing surrender charges.
Alan S. Lewis, who turned 51 while in jail, was accused of embezzlement, grand theft and burglary in the sale of annuities with surrender charges. The prosecutor said the $300,000 surrender charge incurred by 12 clients amounted to embezzlement and grand theft. He was also charged with burglary because he visited clients in their home. The charges were dismissed in a July 10 hearing, according to the county court clerk’s office.
The state Department of Insurance has been investigating Lewis for at least two years. The department has not returned phone calls to discuss what prompted the investigation. The county prosecutor’s office filed charges on Oct. 24, 2013, three days before the statute of limitations deadline.
Lewis had left the annuity business after the economic collapse in 2009 and moved to Tennessee. He grappled with severe depression that led him to live on the streets of Nashville for a year. Lewis had moved to Houston and was pulled over for speeding in late February, when he was arrested on the California warrant. He has been in jail in lieu of $600,000 bail ever since.
Lewis was initially charged with 36 felonies and faced 40 years in prison. A judge later dismissed some of the charges, leaving 29 felonies and a misdemeanor. Lewis rejected offers by the prosecution to settle the case, urging his public defender to take the case to court.
The deputy district attorney, Sheronda Edwards, had amassed hundreds of pages of documents detailing the annuity sales and submitted recorded interviews with the “victims.” Trial had been set for July 28 in the latest of several delays that Edwards was granted.
In the meantime, annuity industry advocates were dismayed over the potential precedent set by a conviction. Kim O’Brien, president and CEO 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.
“A determination by the court that selling an annuity with a surrender charge is tantamount to embezzlement or common theft – and if the sale occurs at the client’s home, with burglary – would have a chilling effect on the ability of consumers to have access to fixed annuities,” O’Brien said in a statement from the association of fixed index annuity companies.
The last trial delay was for the prosecutor to receive annuity contracts from three insurance companies. Nine insurance companies submitted contracts for annuities and other financial contracts, some companies sending more than one contract. The companies subpoenaed for documents were Allianz Life, Genworth Life, Lincoln National, Fidelity & Guaranty Life, American Equity, American General, North American, Athene and ING.
From 2002 to 2005, Lewis focused on fixed index annuity sales as he worked for Family First Insurance Services, based in Woodland Hills with 11 regional offices in California. In 2005, the California attorney general sued Family First for $110 million, alleging the firm used estate planning and living will advising to discover clients’ assets and then sell them annuities without fully informing them of the products’ drawbacks. The suit was settled in 2007 for $7.2 million and the closure of Family First.
The Riverside County district attorney’s case was assisted in part with resources from a state program established to prosecute life insurance and annuity agents. The county has received $371,000 from the state Life & Annuity Consumer Protection Program since 2006 to prosecute cases and warn the public about insurance “scams,” particularly annuities.
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 firstname.lastname@example.org