A Social Security cost-of-living adjustment could have a small but positive impact on retirement planning.
Feb. 23--AYNOR -- Peggy Allen was born and raised across the street from the house where she now lives -- a house that her grandfather built by hand, using timber he cut from his own land, more than 100 years ago.
Bakers Chapel Road was a dirt road when Allen was a child, and Allen said she remembers "running across the field to Grandma's house" to play when the weather was warm. Allen's father and his four siblings grew up in the two-bedroom home, which still has its original, unpainted exterior.
Today, a bank is threatening to foreclose on the home that's been in Allen's family for three generations. What should have been a comfortable, albeit modest, retirement with her husband, Charles, has instead turned into a gut-churning, constant worry over money.
"We used to be able to pay all our bills and we could go out to eat whenever we wanted," said 80-year-old Charles Allen, whose health has been in steady decline ever since he suffered a stroke in 2000. Charles Allen said that when the couple splurges on a restaurant meal these days they split a sandwich to save money. "I never dreamed something like this would happen to me."
The Allens blame Rick McDavid, a Myrtle Beach life insurance salesman, for their financial problems.
They aren't alone -- nearly two dozen lawsuits have been filed against McDavid by families who say the insurance salesman scammed them by talking them into mortgaging their homes and properties for high-dollar life insurance policies they didn't need and didn't understand. The allegations include fraud, breach of contract and negligent misrepresentation.
"I hope he goes to jail," said Wanda Causey, whose husband Jackie uses a wheelchair to get around due to years of diabetic neuropathy and other health problems. The Causeys have been served with a foreclosure lawsuit on their property, which they say McDavid convinced them to mortgage for a whole-life insurance policy. Jackie Causey, who was used to making the financial decisions as the man of the house, was on methadone for pain when McDavid made his sales pitch.
"Anybody that takes advantage of sick people and elderly people, I don't know what's good enough for them," Wanda Causey said.
Jackie Causey puts it more bluntly: "If I weren't in this wheelchair, I'd go after him."
Salesman, agencies stand by work
McDavid is not facing any criminal charges and he denies any wrongdoing in his answers to the civil lawsuits. McDavid declined to talk to The Sun News. His lawyer, Stephen Brown of Charleston, said he has "a standing policy that I do not discuss litigation."
The insurance companies that issued the policies -- Fidelity & Guaranty Life Insurance Co. and Aviva Life and Annuity Co. -- also are named as defendants in the lawsuits. Those companies deny any wrongdoing in court filings.
Larry Kristinik, a Columbia lawyer for Fidelity, said it is the insurance company's "policy to refrain from commenting publicly about pending litigation."
"We believe these matters are more appropriately addressed in the court system," Kristinik said.
Aviva spokesman Kevin Waetke said the company "has consistently acted in good faith in researching, underwriting and administering the life insurance policies at the heart of this litigation."
"The policies were issued only after appropriate review, and consistent with applicable law and industry standards," Waetke said. "The owners of the policies in question were provided with disclosures and illustrations that described the type of insurance product they purchased from Aviva."
Sid Connor, a Surfside Beach lawyer who represents the families suing McDavid, said the salesman preyed on elderly people and others who had plenty of equity in their homes but lacked financial sophistication.
"Rick McDavid is a financial assassin," said Connor has spent nearly two years building cases against McDavid at no cost to his clients. "He comes armed with everything he needs to take your money, and these people don't know it."
Connor estimates his clients have paid more than $2 million for insurance they didn't need, in addition to mortgage payments they would not have had and the emotional trauma each of them has suffered. Connor spends more than half his time working on the McDavid lawsuits, with the rest of his schedule spent working on "a lot of routine stuff that pays the bills."
A new way to profit
McDavid -- a 63-year-old Virginia native and East Tennessee State University graduate -- had been selling life insurance for about a quarter of a century when the real estate boom sparked an idea: by leveraging the equity in clients' homes and property, McDavid could boost policy sales and his commissions.
"I took Rick as a genius," Marilyn McDowell, McDavid's former girlfriend, said during a deposition in 2009. "He knew the ins and outs of everything."
It took awhile for that genius to manifest itself in cash.
Financial statements McDavid filed during his 2004 divorce from his fourth wife show he was barely scraping by financially at the time despite an income of $60,000 from his insurance business, called Old South Financial Services. McDavid was driving a new Buick Regal at the time, but his paycheck couldn't cover all of his expenses, the tax bills were piling up and McDavid had just $650 in the bank.
"When we first got together, Rick had nothing," McDowell said during a deposition. "He borrowed $11,000 from me to pay a debt."
McDowell, who couldn't be reached for comment, was working as an office manager at East Coast Honda in 2004, the same place McDavid's ex-wife worked. McDowell testified that McDavid called her at work one day, wanting advice on how he could get his wife back. McDavid and McDowell had lunch together, and a romance blossomed at the same time McDavid's idea -- what he called his "program" -- began to pay dividends.
By 2007, McDavid had given his new girlfriend a diamond ring during a trip to Jamaica, and the couple were engaged, according to McDowell's deposition.
"He promised me that he'd show me the world, he'd give me the world," McDowell said. "He even promised he would die for me."
McDowell, in court documents, describes McDavid as being a man driven by money and belongings, especially luxury items.
"Rick loves to spend money," McDowell said during another deposition, also taken in 2009. "He bought 200 guns. He would buy boats. He would buy houses. He would buy river lots. . . . He would buy extravagant gifts for me, and one in particular, he bought me a $6,000 tennis bracelet."
McDavid gave his girlfriend cash, remodeled her home, paid for her tummy tuck and installed an in-ground pool because she wanted one, according to McDowell's deposition.
"I'd have to pull him out of stores to keep him from buying stuff for me," McDowell said.
IRS suit cites $1.6 million unpaid taxes
The relationship had its problems. McDowell said in her deposition that McDavid didn't like her children, and was sometimes mean to them. She wanted financial stability, yet McDavid "was always spending money, he would spend money behind my back."
The biggest problem was the Internal Revenue Service.
McDavid hadn't paid his taxes since 2002, according to court documents, and McDowell said she refused to marry him until he cleared his tax debt. Neither of those things happened.
The IRS filed a civil lawsuit against McDavid this year, alleging he owes nearly $1.6 million in unpaid taxes and penalties after nearly a decade of failing to file returns. The S.C. Department of Revenue also has filed nearly $240,000 in tax liens against McDavid. The IRS has asked a federal judge for permission to foreclose on McDavid's property to help settle the tax debt, although a final ruling has not been issued.
McDowell said she also suspected McDavid of being unfaithful.
McDavid had put most of his belongings -- purchased with the proceeds of insurance policy sales -- into McDowell's name to keep the IRS from seizing them, according to court documents. Among the items: a 2008 Volkswagen Beetle; a 2008 Lexus; a 2008 Malibu Wakesetter boat; a 2007 Kubota tractor; a home in the Pottery Landing gated community near Conway; and a home in the Carolina Lakes subdivision in Horry County.
As their relationship soured, McDavid pressured McDowell into transferring those belongings -- including some that he initially said were gifts to her -- back into his name.
McDowell -- who was living apart from McDavid -- said in a deposition that she believed McDavid wanted his belongings because he was seeing another woman. McDowell had a key to McDavid's house, and in late September 2008 she secretly hid a tape recorder in his bedroom. That recording, which is included among court documents, caught a lengthy telephone conversation between McDavid and the other woman.
"Program" pays off for McDavid
McDavid's income soared during the time he and McDowell were dating -- from about $400,000 in 2006 to about $1.1 million the following year and about $750,000 in 2008, according to documents in the civil case filed against him by the IRS.
McDowell, in a deposition, said her bookkeeping showed McDavid was making even more money -- her QuickBooks software accounting program put his income at $1.9 million for 2007.
The newfound wealth was due to the insurance "program" McDavid invented, according to McDowell.
"He started refinancing people's homes and taking their money and buying insurance and annuities," McDowell said in a deposition. "He takes their money out of their house, their equity. He convinces them to put X amount of dollars in annuity. He convinces them to buy a life insurance policy, saying it is money-making . . . and he shows them how they can take their money interest in their insurance and annuity and pay their house payment so they will be scot-free of a house payment."
McDavid's commission depended on how long he could keep the insurance policies in effect.
The commission on a whole life policy equaled the premium payments for one year. In the Allens' case, for example, McDavid's commission would have equaled $36,000. But McDavid only got that amount if the policy was paid up for three years. If the policy was canceled after just one year, McDavid would get just one-third of the full commission amount.
"He would squeeze everything out of you with the equity in your home to make sure he got his commissions paid," Connor said.
McDavid also got a commission from the mortgage broker in each transaction, McDowell said.
McDowell said in a deposition that McDavid's program worked fine for wealthy clients, "because when the economy went down, they had money in their annuity."
"Now, for the older folks that don't have anything but Medicare and Medicaid, it doesn't work for them," she said.
The program also didn't work if housing values declined, McDowell said, because it required multiple refinancings for continually higher mortgage amounts to keep up with the insurance and house payments.
Clients in the congregation
Court records show that most of McDavid's clients were not wealthy, and many were elderly who relied on Social Security and meager retirement payments for their living. Connor said his elderly clients "certainly didn't need a whole life policy," and even though McDavid touted the insurance as an investment, "it's traditionally been a poor investment."
The insurance companies liked McDavid's program so much that Aviva appointed him to the advisory board of the company's Creative Marketing International Corp., a subsidiary designed to provide training and education for insurance agents and help them boost sales. In his 2011 biography for Creative Marketing, McDavid said he has sold more than 4,100 policies worth $267 million during a nearly 30-year career.
"He told us that his program was so good, that he had been offered $25 million for it," said Wanda Causey, one of the clients who now are suing McDavid.
McDavid -- whose business card omits the words "life insurance," instead referring to his services as business development and estate enhancement -- used the same mortgage broker and lawyer for every transaction, court records show. Those individuals are not named as defendants in the lawsuits.
McDowell said in a deposition that McDavid found many of his clients through the church they attended, Socastee Original Freewill Baptist Church on S.C. 707.
"I referred him some friends in my church," McDowell said in a deposition. "I had one friend that done the business that was directly involved in my church and then her sister and then one of her friends."
Some of McDavid's clients said they were convinced the insurance salesman had their best interests at heart.
"He was a well-dressed Christian man," said Charles Causey, who is Jackie Causey's brother. Charles Causey -- who suffers from Parkinson's disease -- and his wife, Judy, mortgaged four properties including their residence to purchase nearly $2.5 million in life insurance policies at McDavid's urging.
"We just more or less felt that he was a good, church-going Christian, and we trusted him," said Charles Allen.
Darren Squires, the church's pastor, trusted McDavid enough to give him $50,000 in July 2006 for a proposed land investment in Lexington County. McDavid promised Squires that he could double his money in one month. Squires never saw his money again and he sued McDavid and a business partner in November 2008. Squires eventually obtained judgments against McDavid and the business partner, but court records show those judgments were never paid.
Squires did not respond to requests for an interview.
The Allens were living on about $38,000 a year in Social Security and pension income when McDavid convinced them in August 2008 to mortgage their 100-year-old, debt-free home for $102,500 at 9.3 percent annual interest. Charles Allen, who retired to Aynor after working in a Rock Hill textile plant for more than 30 years, said his brother introduced McDavid as "someone who might be able to help us, so he [McDavid] called us and came over."
Charles Allen's brother, Larry Allen -- along with his wife, Betty -- had taken out $3.5 million in life insurance polices just two months earlier, mortgaging their home for $320,000. Flush with cash from the mortgage, Larry and Betty Allen were singing McDavid's praises, Charles Allen said. They now are among the clients suing McDavid after having paid $160,000 for insurance they can no longer afford.
Charles and Peggy Allen, who recently celebrated their 59th wedding anniversary, said they did not fully understand McDavid's sales pitch -- "The stroke messed up my brain; I can read something but I don't know what I've read," Charles Allen said -- yet the couple went through with the deal, figuring Charles Allen's brother must know what he's doing and counting on McDavid's church-going background for assurances.
The mortgage closing was a blur -- "He [the lawyer] had a stack of papers and he kept flipping them, saying, 'Sign here . . . sign here'," Charles Allen said.
Court records show proceeds from the mortgage were used to purchase three whole life insurance policies with death benefits totaling $350,000 for Peggy and Charles Allen. Because of Charles Allen's poor health, the premiums for those policies totaled nearly $3,000 a month.
"I told him [McDavid] I've had a stroke, that I can't get life insurance," Charles Allen said, adding that a nurse who conducted a physical for the insurance company initially told him he didn't qualify for coverage. "He [McDavid] just said, 'I'll take care of it'. He told us we could buy whatever we wanted and we could put some money in the bank."
Things went fine for more than a year, despite McDavid's repeated requests for premium payments. The Allens' bank records show the couple made five payments totaling $66,500 for their insurance policies between August 2008 and December 2009. That is in addition to an $847 monthly mortgage payment the Allens now had to pay.
When the Allens' bank account ran low, McDavid urged them to refinance their home. In December 2009, McDavid arranged a new mortgage that netted about $30,000 but also carried a lower interest rate that cut the Allens' house payment to $716 a month.
Connor said the lower interest rate was by design, because an anti-churning law in South Carolina forbids multiple refinancings in a short period of time unless there is a tangible benefit to the consumer. That's one reason McDavid initially arranged a high-interest mortgage.
"By lowering their monthly payment, it counted as a tangible benefit," Connor said.
There was another reason: McDavid was getting a kickback from the yield spread premium -- the difference in the actual interest rate paid versus the market rate a borrower qualifies for -- on the initial, high-interest mortgage, according to court documents.
All told, the Allens paid $94,000 on their life insurance policies and kept up with their mortgage for more than two years before the money ran out.
"He wanted some more money and I told my wife we just can't afford to make these payments any more," Charles Allen said.
Newfound wealth evaporates
Judy Causey said she thought she was rich after McDavid refinanced the home she and her husband, Charles, lived in for $300,000. Court records show McDavid wrote a $2 million policy for the Causeys that cost them $8,500 per month. They paid $153,000 toward the policy before their money ran out.
"He [McDavid] told us we had $50,000 and we could do anything we want with it," Judy Causey said. "So we went to Europe."
Charles Causey said he didn't think he was buying life insurance, and he told McDavid he and his wife already had policies and didn't need any more coverage.
"It wasn't until six months later that we finally got the policy," said Charles Causey, who also used money from the retirement plan he earned while working for 35 years at the local Pepsi Cola plant to help pay house and insurance bills.
Connor said McDavid typically had the policies mailed to his office instead of his clients' homes. McDavid then held onto the policies until after the cancellation period had expired and his clients could no longer get back their money.
"He put us in such debt that we couldn't dig out," Charles Causey said. "I've always paid our bills, but this has ruined my life."
Wanda Causey said family members feared she was desperate enough to take her own life during the darkest moments of her financial worries. Her husband, Jackie, was nearly incapacitated at times last year because of his disease and the stress -- "There were days when he couldn't even feed himself," she said -- and then, one day, a process server showed up at her door
"The doorbell rang one morning and they were serving me papers that the house is being foreclosed on," Wanda Causey said. Desperate, she called her daughter for support.
"She thought I was going to do something to myself," Wanda Causey said. "She left her job on the other side of Conway to get here and when she did she said, 'Mama, I just knew you were going to kill yourself'. By the grace of God, I made it through it. But those were the worst six months of my life."
The financial devastation has gone beyond the threat of losing a house.
"There were times when we didn't have adequate food in the house because we were trying to make the [house and insurance] payments," Wanda Causey said, adding that she and her husband have had to rely on their children to stock their refrigerator with food.
"We had to ask my church for help," Wanda Causey said. "We just couldn't make it. I never thought I'd see the day that I would stand in a pantry line, but I've done it. You can lose your pride in a heartbeat if you have to."
Counting on the courts
Connor's clients say they are confident they'll eventually get their money back -- if they live long enough to make it through all the court proceedings and their homes aren't taken first. So far, Connor has been able to fend off the foreclosures by filing counterclaims against the lenders.
Connor has repeatedly asked the S.C. Department of Insurance to investigate McDavid's activities but said he has received little cooperation from the state agency charged with protecting consumers from fraud. Connor said he never heard what, if anything, the department did in response to his requests, "all I know is that it came to nothing."
Records show the insurance department conducted two investigations of McDavid -- one in 2011 and the other in 2012 -- in response to complaints filed by Connor's clients. The department dismissed each complaint within about a month after McDavid provided written statements telling the department he had done nothing wrong.
The dismissal notice in the second investigation shows the department was skeptical of the complainants' motives.
"Although this is the second letter with the same complaint from different insureds, it is noted that these complainants are represented [by] the same attorney and have a civil suit pending against the respondent," investigator Chris Lewis stated in the dismissal notice. "The complainants in both cases did not provide any supporting documentation. Consequently, this matter will be closed with no further action."
Connor is hedging much of his case on a state law that made it illegal, beginning in 2005, for a home lender to finance -- either directly or indirectly -- life insurance premiums. Although insurance premiums weren't paid directly at the mortgage closings, Connor said the policies were written within weeks of the closings, sometimes within days, and his clients would not have been able to afford the premiums except for the proceeds from the mortgages that were arranged by McDavid.
"The law says directly or indirectly -- that's not a mistake, someone wrote that in there for a purpose so you can't get around it," Connor said. "If you are selling life insurance and orchestrating the mortgage, that is an indirect violation of the law."
Connor hopes to cancel the mortgages, recoup the insurance premiums his clients already have paid and get punitive damages against McDavid and the insurance companies.
Connor said he knows some critics will argue that his clients should have been more careful, that they should have read and understood any document before they signed it, but he bristles at the notion of blaming the victims.
"Is that what they'd say if it was their mom or dad?" Connor said. "These are simple, country people who go to church and trust people. Wouldn't everyone like to have a little more money? Sure. That's how McDavid got his foot in the door. But when you get older, your ability to think about these kinds of things diminishes and it becomes more difficult to fight off someone who wants to take advantage of you."
Contact DAVID WREN at 626-0281.
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