Plaintiffs Abandon Lawsuit Targeting Security Benefit Proprietary Index

By John Hilton

A class-action lawsuit alleging that Security Benefit Life Insurance Co. defrauded consumers by implementing a “fraudulent scheme” involving a proprietary index used in two fixed indexed annuities was quietly withdrawn last week.

The lawsuit, filed Oct. 16 in California federal court, was closed with a two-sentence brief asking the court for a "voluntary dismissal."

An attorney for the three plaintiffs did not return a phone call or an email seeking comment. A spokesman for Secure Benefit declined comment.

The plaintiffs, who hail from Illinois, Arizona and California, claimed the company misrepresented returns. Security Benefit, through the spokesman, denied the claims in October and vowed to "vigorously defend" itself.

Critics and regulators have been targeting proprietary indexes, saying they overstate performance in illustrations used to sell indexed annuities.

The lawsuit targeted two of Security Benefit’s FIAs, the Total Value and Secure Income annuities, both of which offer the Annuity Linked Trader Vic Index (ALTVI), which is based on commodities and currencies futures along with a volatility control. The index is offered as an option along with traditional indexes such as S&P 500.

Generally, annuities are marketed with a cap or participation rate that leaves owners with less than 100% of the market gains. In exchange, the client is protected against market losses.

The plaintiffs say Security Benefit marketed its TVA products as “uncapped” and with a “100% participation” rate.

“Using uniformly misleading marketing materials and illustrations to implement the scheme, Security Benefit deceptively illustrated the performance of the Synthetic Indices as capable of producing double-digit returns to the purchasers of a Secure Income or Total Value Annuity,” the lawsuit read.

Another lawsuit that was dismissed this summer claimed the company’s use of the proprietary index amounted to racketeering.

In July, a Kansas District Court judge dismissed a similar lawsuit brought by Albert Ogles. According to the lawsuit, Ogles purchased a TVA in Alabama in July 2012 for approximately $145,000 and allocated 100% of his funds to the ALTVI.

Ogles earned zero interest after five years. Although Ogles acknowledged he did not lose money, he claimed the product was misrepresented. Judge Holly Teeter ruled that Ogles failed to offer enough evidence that the annuity he bought was fraudulently designed.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.