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 more on the case, visit the Glenn Neasham page.
By Steven A. Morelli
The boyfriend of a client at the center of annuity agent Glenn Neasham’s case claimed he did not know the client had dementia even though an investigator’s report showed he admitted knowing -- just months after an annuity sale that led to Neasham’s theft conviction.
Neasham was convicted of felony theft from an elder in California court in October for selling an Allianz MasterDex 10 indexed annuity to an 83-year-old woman said to have been diagnosed with dementia in 2003. The prosecutor said Neasham knew about the client’s disorder but Neasham said he did not see any signs of it in two meetings with her. Two of his assistants also testified that they did not see any indications of dementia. The prosecutor, Rachel Abelson, admitted to InsuranceNewsNet that she did not prove in court that Neasham knew about the dementia.
The client, Fran Schuber, visited Neasham at his Lakeport, Calif., office on Feb.1, 2008, with her boyfriend, Louis Jochim, to discuss buying an annuity similar to one owned by Jochim. A CD of hers worth $239,000 was about to mature and the couple thought she would get a better return from an indexed annuity. Jochim had made about 10 percent on his Allianz annuity the prior year. Schuber indicated in a questionnaire that she was in good health.
Jochim, who lived with Schuber, told InsuranceNewsNet that he didn’t tell Neasham about Schuber’s dementia because he didn’t know about it.
“I didn’t know there was anything wrong with her,” said Jochim, who had a relationship with Schuber for about 12 years by the time of the transaction. “In the later years she was getting forgetful, sure, but she still did her own work. She cleaned house, did some dusting, made her bed herself if I wasn’t there to help her. And she’d do some things in the kitchen.”
Abelson, however, said Jochim told investigators two months after the transaction that he knew.
“The boyfriend told my investigators a few months after the transaction that she had been diagnosed with Alzheimer's,” Abelson said. “So it seems a little strange that it wouldn't have been mentioned during this transaction.”
The district attorney’s investigators had become involved after Schuber and Jochim visited a bank branch to take money from the maturing CD to purchase the annuity. The branch manager called the county elder abuse unit to complain about Jochim’s influence over Schuber.
Jochim said bank personnel were giving Schuber and him a hard time about using the money from the CD for an annuity, which would not be covered by the Federal Deposit Insurance Corp. (FDIC).
“The person I was talking to had an angry attitude and one thing she said is if you put the money over with Glenn, you won’t be able to get that government protection, FCIA or whatever it’s called,” Jochim said.
The bank manager spoke to Neasham by phone while the couple was at the bank. Neasham said he explained the annuity, “but then she said, ‘we don’t have a problem with the annuity – we have a problem with Lou.’ ” The manager also said Schuber was confused about the annuity.
When Schuber returned to Neasham’s office, Neasham said he asked her if she understood the annuity and if she had any questions. She said she did not and gave Neasham the $175,000 check. Later, when Neasham delivered the policy, he had Schuber and Jochim sign a statement restating the basic terms of the annuity.
Although Allianz Life has a policy of calling all applicants 75 and older, the company instituted the practice just a few weeks after the Schuber sale and had not called her, a company spokesperson said.
DA Investigator Interviews Couple
After the bank manager complained to the county district attorney’s elder abuse unit about Jochim’s undue influence over Schuber, investigators interviewed the couple at their residence on April 1, 2008. An audio recording was made of the meeting but prosecutors denied the existence of the tape until closing arguments during Neasham’s trial in October 2011. The tape was not played for the court, but the jury did see a video of an interview with Schuber from the summer of 2011 in which, by all accounts, she appeared to be suffering from dementia.
Criminal Investigator Martina Santor said in her report that she noticed Schuber’s memory problems and that Jochim told her about Schuber’s health and cognitive issues during the April 2008 interview.
“Louis advised that Fran had many medical problems, including recent surgery for having a portion of her intestine removed and dementia/Alzheimer,” according to the report.
The report also said Schuber told the investigator that she was buying the annuity of her own free will.
“Fran said she moved the money to help out with her taxes and no one forced her to do it,” the report showed. Jochim said Schuber had $64,000 in an open account at her bank.
(Neasham has said that after assessing Schuber’s assets and needs, he recommended a $175,000 Allianz MasterDex 10, a two-tiered indexed annuity that had been the most popular for several years running. After the purchase, Schuber had about $100,000 in CDs and cash, he said.)
The investigator said although Schuber said Jochim “took very good care of her,” Jochim appeared to be controlling her finances.
“It should be noted that Fran is clearly not making financial decisions on her own and is being lead by Louis, as she has a diminished capacity and is unable to make them on her own,” according to the report. “Fran denies that fact, and is perfectly happy with her current situation. It should also be noted that both Fran and Louis have entrusted a large portion of their individual finances with Glenn Neasham Financial.”
The report concluded with the notation: “Case Closed: Unsubstantiated due to victim’s Uncooperativeness.” The report does not indicate that Schuber refused to answer any questions.
Neasham said that in two meetings with Schuber and Jochim before the sale he had also noticed that although Schuber asked and answered questions, Jochim was addressing the financial issues.
“The few questions she did ask were not financial – she said her boyfriend handled that,” Neasham said.
State Department of Insurance Takes Over
The district attorney’s office closed the case and forwarded the information to the California Department of Insurance, which opened its own investigation later that year.
Two years later, in December 2010, Neasham was arrested on the charge of felony theft from an elder. At a preliminary hearing, the judge allowed the case to proceed even though he felt the prosecution “has only passed that (strong suspicion) test by the thinnest of lines.”
The prosecutor said the transaction was theft because Schuber was “deprived of a major portion or enjoyment of the value of the property.”
“It would have taken her a long time, 15 years, to get the benefit of what she thought she was getting,” Abelson said. “We had testimony that at her age she was more likely to need access to that money and what was her access before and what was it now.”
The MasterDex 10 had a minimum five-year deferral with a minimum 10-year payout of the annuitzation value. After the five years, the owner could annuitize and get a guaranteed income for 10 or more years up to life. During the deferral period, the owner could take out 10 percent of premiums annually as a penalty-free withdrawal. In addition, if the owner goes in a nursing home, the owner can take the full value out over five years. The MasterDex10's annuitization value started with a premium bonus and then could accumulate with the choice of fixed or indexed interest allocations. This product was not designed for lump-sum surrender.
Allianz stopped offering the MasterDex 10 in September 2010, when Neasham was on trial. Two-tier annuities have been criticized as being too complex and companies have pulled back from the products.
Prosecutor Criticizes Annuities for Older Clients
Even though the MasterDex 10 was approved for sale in California up to age 85, Abelson said it was inappropriate for people over a “certain age.”
“I personally don’t believe in selling annuities like the MasterDex 10 with the 15-year period to a person who is unlikely to benefit from it,” Abelson said, calling the annuity a “higher-commission” product.
“When you’re thinking about suitability, I think people need to be a little more realistic about what people’s health needs are later in life,” Abelson said. “She had in some sense very little liquidity after this. This is somebody who’s 83 and more likely to be in a nursing home that costs $15,000 a month versus somebody who’s 50 or 60 planning more for retirement, not end of life. I don’t believe personally that things like the MasterDex 10 are good for people over a certain age. But criminally that’s something different.”
Neasham was convicted in October 2011 and sentenced in February 2012 to 300 days in jail, which was reduced to 60. Neasham can no longer afford an attorney and the court has appointed a public defender to prepare his appeal.
Neasham’s insurance license was revoked in March. He, his wife and four children moved to a house owned by Neasham’s in-laws and survive on about $20,000 annually, charity and food stamps.
During the trial, Schuber’s son, Ted, had his mother “conserved,” meaning she and her assets were turned over to his care. After the trial, Ted Schuber requested a refund from Allianz, which the company provided in full plus interest.
Neasham Contacted Son Before Sale
Neasham had contacted Ted Schuber during the sale process in 2008 because he was concerned that Fran Schuber had named Jochim the beneficiary rather than her son. Neasham said he explained the annuity to Ted Schuber and discussed the beneficiary. Ted understood and said his mother was free to do whatever she wanted, Neasham said. Ted did say he was worried about his mother’s health, but Neasham said he was not specific.
The letter that Neasham had Fran Schuber and Jochim sign also acknowledged that Fran Schuber wanted Jochim to be the beneficiary rather than her son.
(During a phone call with InsuranceNewsNet, Ted Schuber hung up as he was asked why he did not tell Neasham about his mother’s dementia.)
Jochim said Fran Schuber named him because she did not want to leave her son anything.
“She has one son and I hate to say the word, but she hated him the whole time we were together,” Jochim said. “I never wanted anything she had. She gave everything. She wanted me to have it. She was willing to give it outright to me and I said that would not be right. I just wanted her to have that money for herself whenever she got old. And the only time he came around in all those 15 years is he wanted her to turn over everything she owned to him.”
Jochim moved out after Schuber was conserved, he said. “It’s the hardest thing I’ve ever done in my life, to walk away.”
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 email@example.com.