Ringleader of pension fraud scam adapted to IUL sales sent to prison

The man behind a pension fraud scheme that was adapted to indexed universal life sales, resulting in millions of retirement fund losses, dozens of lawsuits and a high-profile bankruptcy was sentenced to 10 years in prison Friday.

Authorities say Scott Kohn, 68, of Newport, California, caused $310 million in losses to more than 2,500 retirees and placed more than 13,000 veterans into exploitative loans.

Kohn ran a corporation called Future Income Payments LLC (FIP), formerly known as Pensions, Annuities, and Settlements LLC. From April 2011 until April 2018, Kohn and his co-conspirators used FIP as a vehicle for a nationwide Ponzi scheme.

Kohn and his co-conspirators solicited pensioners experiencing financial distress, most of whom were military veterans, by offering an upfront lump-sum payment in exchange for an assignment of the rights to their monthly pensions and disability payments, prosecutors said in a news release. Even though the assignment transactions were characterized as "sales," they were, in fact, usurious loans with annual interest rates of as much as 240%.

Kohn and his co-conspirators -- working through a network of hundreds of financial advisors and insurance agents nationwide -- then solicited thousands of seniors to purchase FIP's "structured cash flows," which were the pensioners' monthly pension payments.

Kohn and his co-conspirators induced seniors to invest their retirement savings with FIP by making false assurances of a significant rate of return on their investment, the news release said, concealing the usurious nature of FIP's transactions with the pensioners and lying about the financial health of the corporation.

At some point, the scheme looped in sales of IUL policies, authorities 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.

Shurwest, a successful Scottsdale, Ariz., independent marketing organization, filed for Chapter 11 bankruptcy Aug. 31, 2021. Shurwest is in the midst of bankruptcy proceedings and negotiating with claimants on settlement terms. Shurwest is also being sued by Minnesota Life. Agents allegedly altered applications on more than 1,000 policies sold through Shurwest between 2014 to 2018, Minnesota Life claims in its lawsuit.

During the seven years the scheme operated, Kohn drew upon FIP funds to live a lavish lifestyle, authorities said.

"Kohn and his co-conspirators reached across the country to steal from veterans and seniors who desperately needed their money," said U.S. Attorney Adair F. Boroughs for the District of South Carolina. "These hundreds of millions in losses will reverberate through the victims' lives long after the defendants serve well-deserved federal prison sentences. This office works tirelessly to protect the people of South Carolina, especially our most loyal and most vulnerable citizens. I appreciate the work of our federal partners and our partners at DOJ for making this prosecution a success."

In addition to a prison term, Judge Bruce Hendricks ordered Kohn to forfeit $297 million and be placed on supervised release for a period of three years after completing his prison term.

Four other defendants previously pleaded guilty to conspiracy for their roles in this scheme. Kraig S. Aiken, 53, of Rancho Santa Margarita, California, pleaded guilty on Nov. 20, 2019. David N. Kenneally, 59, of Greenville, South Carolina, pleaded guilty on July 22, 2020. Melanie Jo Schulze-Miller, 40, of Peoria, Arizona, pleaded guilty on Dec.11, 2020. Joseph P. Hipp, 52, of St. Louis, Missouri, pleaded guilty on Dec.21, 2021. Sentencing hearings have not yet been set for these co-conspirators.

This report compiled by InsuranceNewsNet staff.