An Arizona independent marketing organization faces additional scrutiny over how much it knew about a fraudulent scheme to pump up indexed universal life sales.
Shurwest filed for Chapter 11 bankruptcy Aug. 31 in a bid to settle scores of lawsuits, all while steadfastly maintaining that company executives knew nothing about a pension fraud scheme adapted to hundreds of IUL sales.
“We had a rogue employee who set up a business we didn't know anything about,” said Michael McGrath of Mesch Clark Rothschild, a Tuscon, Ariz., law firm handling Shurwest’s bankruptcy filing.
New court documents filed last week in two states will challenge those denials.
In Arizona, a team of attorneys representing 142 plaintiffs filed a lengthy “statement of facts” in federal bankruptcy court.
“Our clients have suffered significant losses and if we don’t speak for them nobody will,” said Robert Rikard of Rikard & Protopapas, a Columbia, S.C., law firm. “As lawyers, we have to follow the rules and live by the rules. In these cases, it seems Shurwest has decided they have a different set of rules they want to play by.”
The attorneys filed 28 exhibits totaling about 1,200 pages, with some pages redacted or filed under seal. The package includes depositions, emails, itineraries, and other internal documents depicting a high-risk sales strategy that, at times, made Shurwest executives and their producer partners nervous.
‘Extra Better For Us’
Still, the promise of lucrative returns enticed executives and producers, as well as unwitting consumers.
“This vehicle allows me to yield an extra 5-6% when I’m funding a life policy,” wrote Melanie Schulze-Miller, national sales director of life insurance for Shurwest, in a 2016 email to her boss. “Better for client, better for us, better for agent, and it actually creates a larger life policy because the premiums are even higher (so extra better for us).”
Prosecutors say the scam originated with a company called Future Income Payments (FIP).
Using various marketing efforts, FIP solicited pensioners by offering them a lump sum in exchange for a portion of their future pension payments. FIP called the practice “structured cash flows” and the company used brokers and insurance producers to find investors - often retired veterans, teachers and firefighters.
Unknown to many investors, the future pension payment terms required them to pay what often equated to an annual interest rate exceeding 100% over a five-year term.
In time, another layer was added to the scam, prosecutors said. Investors were urged to fund IUL policies with their FIP payment, ostensibly to replace the pension as a retirement plan. However, prosecutors said the new layer just created another opportunity for rogue agents and FIP reps to further gouge investors through hidden and high fees.
Emails between then-vice president of sales Jim Maschek and co-founder and president Ron Shurts show that Shurwest executives were wary of the FIP idea when first proposed. Shurts wrote that he was “uncomfortable” with the idea and wanted compliance officers to take another look at it.
Schulze-Miller would go on to form her own company called MJSM Financial, which handled many of the fraudulent sales, according to court documents. Schulze-Miller claimed she did so at Maschek’s suggestion, court documents say.
Pairing FIP with life insurance sales paid off handsomely for Shurwest. According to court documents, the company’s annual gross receipts were $15.7 million in 2016, and jumped to $21.1 million in 2018.
“Everyone at Shurwest, including Maschek and Shurts, were fully aware that we were promoting FIP to fund life insurance policies,” reads an April 2021 affidavit signed Schultze-Miller.
Scam Falls Apart
By April 2018, the FIP scam descended into a Ponzi scheme, prosecutors say. FIP founder Scott Alan Kohn, 67, was later indicted on federal charges of conspiracy to engage in mail and wire fraud. His trial was delayed by the COVID-19 pandemic. Kohn faces 20 years in prison for the federal offenses.
Depositions and emails paint a picture of panic enveloping the Shurwest offices by May 2018.
“I was told by my superiors at Shurwest to delete anything that had FIP on it out of the computer system,” reads an affidavit filed earlier this year by Tami Hill, a Shurwest service manager in the Life Insurance Division from September 2017 until September 2018.
Shurwest fired Schulze-Miller on May 8, 2018. Eight days later, Shurwest sued Schulze-Miller and her husband in Arizona Superior Court, claiming breach of contract and breach of fiduciary duty.
“At all times, Ms. Schulze-Miller concealed her self-interested activities regarding FIP from Shurwest management,” the lawsuit reads.
Saying later that she feared for her ability to earn a living, Schulze-Miller signed a declaration in September 2018 in which she took complete responsibility for the FIP sales and said Shurwest executives had no knowledge of her activities. The agreement resolved the lawsuit.
According to court documents, Schulze-Miller earned more than $1.2 million in commissions directing business to FIP. She cooperated with investigators and pleaded guilty in December to felony conspiracy to defraud. Schulze-Miller agreed to forfeit nearly $180,000 and one vehicle, a 2017 Infiniti, as part of her plea deal.
In a new affidavit filed April 17, 2021, Schulze-Miller recanted her 2018 declaration and gave a different account.
“I was told by Shurts and Maschek that I needed to protect Shurwest and accept responsibility for promoting FIP to Shurwest clients, and that protecting Shurwest was the best way to protect me,” the new declaration reads. “I was asked to deny that Shurwest had knowledge that FIP was being promoted in connection with the sale of policies, which was not the case.”
Meanwhile, Shurwest moved quickly to satisfy two top producers, court documents say. In a deposition, Al Manfre of Heritage Financial Services in Lake Forest, Calif., described flying to Phoenix Sky Harbor International Airport for a quick afternoon meeting with Shurts and Maschek in the summer of 2018.
Plaintiffs’ attorneys say Shurwest ultimately paid Manfre more than $2.2 million. The agreement left Shurwest to pay 86% of Manfre’s client losses to FIP sales, court documents say.
Drew Horter and Horter Investment Management in Cincinnati also settled with Shurwest around the same time, court documents say. Shurwest owes Horter Investment Management $761,250, according to bankruptcy documents.
Likewise, Minnesota Life sought answers from Shurwest after policyholders flooded the insurer with complaints. After discovering the FIP funding scheme, Minnesota Life offered to rescind all those policies and refund premiums. A total of 210 IUL policies had been rescinded as of July, Minnesota Life said in a July lawsuit against Shurwest.
Minnesota Life prohibits the use of structured cash flows to fund life insurance policy premiums because the insurer loses money on each sale of an IUL policy that results in an early lapse, Minnesota Life explained in the lawsuit.
In March 2019, Shurts and Minnesota Life reached an agreement for Shurts to pay Minnesota Life $200,000 up front, and then $50,000 per month, later increased to $75,000 per month, the insurer said in its lawsuit. The money was intended to reimburse Minnesota Life for commissions paid on the rescinded sales.
Bullying Campaign Alleged
Otherwise, Shurwest dealt with the FIP problem by cutting ties with its entire life insurance team, court documents say. Since then, Shurwest filed several third-party complaints against Schulze-Miller in multiple civil actions, and sued Tami Hill, her sister, as well.
Later, after Shurwest rebranded as The Quantum Group, it sued opposing attorneys in Arizona state court.
“I’ve been practicing law for over 20 years and I’ve never seen the level of bullying and intimidation as I’ve seen from Shurwest,” said Joseph Peiffer of Peiffer Wolf Carr Kane & Conway, a New Orleans law firm. “Fortunately, my law firm and my clients will not be intimidated.”
Peiffer is chairing the ad hoc committee of plaintiffs suing Shurwest.
Arizona bankruptcy court is not the only legal venue where Shurwest is facing added scrutiny.
In South Carolina, Schulze-Miller won an order to show cause, or the right to conduct discovery on Shurwest for several issues, including whether company executives knew about the FIP sales. Shurwest attorneys requested a protective order from discovery, which the court denied last week.
Explaining her request for the show cause in court documents, Schulze-Miller cited repeated lawsuits from Shurwest targeting her and Tami Hill.
“The purpose of these lawsuits appears to be to harass and intimidate not only Ms. Schulze-Miller and Ms. Hill, but also to intimidate and/or harass other witnesses who may testify in this criminal action and other pending civil actions,” the motion reads.
Shurwest attorneys did not respond to an email seeking further comment.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
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