New lawsuit seeks class action for victims of alleged fraudulent IUL sales

A new lawsuit filed last month adds to the legal liability for Minnesota Life Insurance Co. and its partner independent marketing organization caught up in an alleged pension fraud scam.

Shurwest, an Arizona-based IMO, appeared to be on its way to consolidating, negotiating and settling the scores of lawsuits it faces. The IMO filed for Chapter 11 bankruptcy Aug. 31, 2021, all while steadfastly maintaining that company executives knew nothing about a pension fraud scheme adapted to hundreds of indexed universal life sales.

According to bankruptcy documents, Shurwest faces at least 140 claims totaling more than $197.5 million. Shurwest is also being sued by Minnesota Life.

A fresh lawsuit filed in Arizona bankruptcy court by Eleanor and Rocco Ciofoletti, of South Carolina, and Larry Stospal, of Texas, names both Shurwest and Minnesota Life as defendants.
The three plaintiffs purchased Minnesota Life IUL products from Shurwest producers.

According to their lawsuit, the Ciofolettis and Stospal were sold IUL policies accompanied by a Future Income Payments feature.

Using various marketing efforts, agents allegedly targeted pensioners with the FIP strategy by offering them a lump sum in exchange for a portion of their future pension payments. Scammers pushing FIP allegedly 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.

‘Illegal usurious loans’

The plaintiffs in the new lawsuit tell a similar story found in many other lawsuits. The Ciofolettis and Stospal allege Shurwest and Minnesota Life had to know that FIP was a scam.

“FIP products were notorious as early as 2015, when several state regulatory agencies investigated the FIP products and determined them to constitute illegal usurious loans,” the lawsuit reads.

The Ciofolettis and Stospal both accepted Minnesota Life’s offer of recission and return of premiums paid, but have not signed any document waiving claims against any defendants, court documents say.

Their lawsuit seeks class-action status, a request that must be approved by the court.

Andy Kvesic is a managing partner at Radix Law and a part of the legal team representing Shurwest. Opposing attorneys representing the Ciofolettis and Stospal are “forum shopping” a proposed class action that was rejected by a Minnesota court, Kvesic said.

The Ciofolettis and Stospal initially sued Minnesota Life, Shurwest and others in Minnesota District Court. A judge there denied class-action status in August 2021, ruling, in part, that plaintiffs did not prove the existence of a fiduciary duty on the part of the defendants. The plaintiffs say those concerns have been addressed in the new Arizona lawsuit.

“We’ve asked them to identify a class and they’ve been unable to do it,” Kvesic told InsuranceNewsNet. “The class doesn’t exist from our point of view. We’re optimistic that the court is going to grant Shurwest’s motion to dismiss the complaint.”

Although the new lawsuit claims “millions of dollars” lost by the class, the three defendants lost premiums totaling less than $50,000, Kvesic said.

Likewise, Minnesota Life attorneys called the new lawsuit, “a frivolous attempt by Plaintiffs (and their counsel) to have a third chance to litigate a failed class claim from the beginning.”

Earlier this year, plaintiffs filed a Proof of Claim on behalf of a putative class in the bankruptcy, which was disallowed in an Arizona court.

Ongoing feud

The new lawsuit could significantly damage what remains of the Shurwest business, said Anil Vazirani, president and CEO of Secured Financial Solutions, a fiduciary advisory firm. Secured Financial is in Scottsdale, Ariz., not far from the former Shurwest offices.

Beginning in 2019, Shurwest began branding itself as The Quantum Group. The two companies appear to share the same address, phone number and employees, Minnesota Life noted in a lawsuit it filed against Shurwest in July 2021 in the U.S. District Court for the District of Minnesota.

Vazirani and Ron Shurts, a founder of Shurwest, are bitter rivals who have clashed in the past. Nonetheless, Vazirani insisted that his concern is to rid the industry of “abusive marketing techniques” being used to fund IUL sales.

“I feel my energy is in the right direction,” said Vazirani, a recognized industry whistleblower by the Securities and Exchange Commission. “Rather than fueling it into a vendetta, I fuel that into protecting consumers, because I believe then and I believe today that these individuals are not acting in the consumers best interest.”

Shurwest sold Minnesota Life products for several years until problems arose with alleged fraudulent sales. Minnesota Life claims the policy applications were altered on more than 1,000 policies sold through Shurwest between 2014 to 2018. Minnesota Life would be sued itself by several disgruntled clients.

Shurwest filed a lengthy bankruptcy settlement plan in November. That plan is the best way for Shurwest to repay the aggrieved parties, its attorneys have said.

According to court documents, Shurwest is proposing to pay claims through an arbitration process using the proceeds from three years of revenue, which it projects at about $6.14 million. Shurwest reported current gross income of about $125,000-$150,000 per month, and future operating expenses to be $35,000-$40,000 per month.

To date, Shurwest has made “a ton of progress” getting claims resolved, Kvesic said.

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.

© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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.