Ponzi Schemes, Improper Annuity Sales Lead Top Fraud Stories Of 2021

Fraudsters earned plenty of headlines throughout 2021 for a variety of scams.

Investigators busted up ever-popular Ponzi-style schemes and kept busy sorting out improper annuity sales. Other fraud claims were sorted out in courts across the U.S. and drew reader interest.

Here are the top 10 most-read stories on fraud cases in 2021:

1. Arizona IMO Seeks Bankruptcy Protection From IUL Fraud Fight

This story recapped a prolific pension fraud scheme that spread to the insurance industry before being shut down by federal investigators.

The victims in the scam included Shurwest, a successful Scottsdale, Ariz., independent marketing organization. Shurwest filed for Chapter 11 bankruptcy Aug. 31 after executives realized “there’s not going to be anything left,” one of its attorneys said.

According to bankruptcy documents, Shurwest faces 38 pending lawsuits in state and federal courts.

“We indicated to some of those outside counsel and some of the folks at Shurwest that there may be a way to bring all this litigation into one forum,” said Michael McGrath of Mesch Clark Rothschild, a Tuscon, Ariz., law firm handling the bankruptcy filing. “So that we don’t simply blow each other's brains out litigating this until there's nothing left in the cupboard.”

Most of the plaintiffs are aggrieved policyholders nationwide who were victimized by a pension settlement fraud scheme that was adapted to the sales of hundreds of indexed universal life policies. IUL is one of the industry’s most popular life insurance products.

2. Ex-Employees: Shurwest Execs Knew About Dubious IUL Sales

This follow-up story to a massive pension fraud scheme applied to the sale of IUL policies delved into the response filed by plaintiffs' attorneys. 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.

3. Former New York Life Agent Ran Ponzi Scheme, California Suit Alleges

New York Life is a defendant in this California lawsuit alleging that a former longtime agent engaged in a Ponzi scheme.

Abidog v. New York Life Insurance Co. was filed in California Superior Court on June 18, seeking damages and alleging that a Ponzi scheme that deprived elderly and other unwitting investors of their life savings. The filing was first reported by the law site JD Supra.

Plaintiffs allege that Felix Chu, as a New York Life agent, lured them into investing life insurance proceeds, retirement funds, and other assets in the purchase of unregistered promissory notes.

Chu, who has 24 years experience with New York Life, was barred from the industry by the Financial Industry Regulatory Authority.

4. ‘Annuity King’ Partner Takes Plea Deal; Florida Fraud Trial Expected In Fall

In this July story, Kenneth Murry Rossman, 63, accepted a plea deal in a federal fraud case that includes co-defendant and prolific annuity seller Phillip Roy Wasserman.

The self-described "Annuity King" in marketing materials, Wasserman, 64, maintains his innocence and is expected to go to trial in 2022 in a Florida court. If convicted, he faces up to 20 years in prison on mail fraud, wire fraud and tax evasion charges.

The government seeks a money judgment of at least $6.3 million, court documents say, the proceeds of the charged criminal conduct.

According to court documents, Rossman pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud, and one count of "aiding and assisting the preparation and filing of fraud and false tax returns." The two counts carry a maximum of eight years behind bars.

5. Lemonade Accused Of Illegally Collecting Consumer Data In New Lawsuit

A New York man sought class-action status for a lawsuit claiming that digital insurer Lemonade unlawfully collected customer's biometric data.

Mark Pruden, of Queens, purchased a renter's policy from Lemonade on Jan. 25, 2021. In late May, Pruden filed a claim for a lost piece of jewelry worth $3,500, court documents say.

The Lemonade model utilizes artificial intelligence chatbots and Pruden was connected with one named "AI Jim," who recorded the details of the claim.

Pruden assented and recorded a 47-second video explaining the details of the jewelry loss. His claim was approved 10 days later. But Pruden alleges that the video was unlawfully used by Lemonade to harvest data.

6. Maryland Couple Used Life Insurance To Fuel $20M Fraud, Feds Say

This story found a Maryland couple in trouble for an alleged scam that went on for 25 years.

A federal grand jury returned an indictment charging James William Wilson, Jr., 74, and Maureen Ann Wilson, 73, of Owings Mills, Md., with federal charges of conspiracy, mail fraud, wire fraud, money laundering, and filing a false tax return. James Wilson has also been charged with aggravated identity theft.

According to the 21-count indictment, from at least 1996 until 2021, the Wilsons conspired to fraudulently obtain more than 30 life insurance policies, worth more than $20 million in life insurance benefits, on behalf of applicants.

7. Judge Tosses Lawsuit Accusing MetLife Of Defrauding Investors

A federal judge tossed out a lawsuit accusing MetLife and its executives of defrauding investors in accounting for its retirement and income solution line of business.

In a Jan. 11 decision, Judge Sterling Johnson Jr. of the Eastern District of New York found the claims "without merit." The resolution comes nearly three years after plaintiff Christopher Parchmann alleged violations of federal securities laws.

According to his complaint, Parchmann claimed that MetLife made misleading statements concerning amounts due under the insurer’s retirement group annuities program. MetLife disclosed in a Dec. 15, 2017, filing that it inadvertently failed to provide annuities payments to approximately 600,000 individuals.

8. ‘Annuity King’ Alleges IRS Misconduct In New Florida Lawsuit

The self-described "Annuity King" escalated his battle with federal authorities with an October lawsuit alleging "rogue, out-of-control, above-the-law" conduct by agents who investigated him.

Phillip Wasserman, 64, faces up to 20 years in prison on mail fraud, wire fraud and tax evasion charges from alleged improper annuity sales. Early in October, a Florida federal judge continued the case until the February 2022 trial term.

The government seeks a money judgment of at least $6.3 million, court documents say, the proceeds of the charged criminal conduct.

9. Courts Left To Clean Up IUL Sales Fraud

This November InsuranceNewsNet Magazine piece recapped the pension fraud scandal.

With the insurance industry facing aggressive regulatory activity on several fronts, it isn’t a good time for an explosive, wide-ranging fraud involving hundreds of insurance product sales. Yet that is exactly what is happening.

What began as a pension fraud scheme spread to the sales of hundreds of indexed universal life policies before being shut down by federal investigators.

Then came the lawsuits, which drove Shurwest, a successful Scottsdale, Ariz., independent marketing organization, to file for Chapter 11 bankruptcy Aug. 31. Executives realized “there’s not going to be anything left,” one of the organization’s attorneys said.

According to bankruptcy documents, Shurwest faces 38 pending lawsuits in state and federal courts.

10. Life Insurance Fraudster Among Those Given Clemency By Trump

President Donald Trump granted some form of clemency to 143 people on his last night in office, including a New York State man who pulled off one of the biggest insurance frauds in history.

Sholam Weiss helped destroy the National Heritage Life Insurance Co. in a $450 million fraud scheme carried out in the 1990s. He was convicted of racketeering, wire fraud, money laundering, and obstruction of justice. Investigators estimate that the fraud cost about 25,000 customers their life savings.

Weiss received what the Justice Department has said is likely the longest term ever imposed for a white-collar crime. By comparison, Bernie Madoff is serving 150 years in prison for his fraud scheme.

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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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.