This year was a busy one for state insurance regulators. They spent thousands of hours picking off the "rotten apples" - insurance advisors who give the profession a bad name by their alleged actions. Many of them are accused of swindling policyholders – often elderly or infirm – out of cash and benefits.
Here we list some of the most notorious cases from among the hundreds tracked down by authorities every year. The cases are compiled from news releases on the websites of respective state insurance departments.
These examples of bad behavior come from an unfortunate few who give the thousands of other law-abiding agents a bad name.
18 Victims, $2.25 Million
It was "one of the worst cases of senior financial abuse we have seen in a while," said California Insurance Commissioner Dave Jones.
Steven Edward Branstetter, 60, of Culver City, Calif., was arrested on 13 felony counts of theft for allegedly embezzling over $2.25 million in insurance premiums from 18 Southern California victims over a period of nine years, California authorities announced in a September 23 news release.
After receiving complaints from Branstetter's clients, who were unable to cash in their annuities, the California Department of Insurance Investigation Division discovered Branstetter had issued fraudulent annuity contracts and life and disability insurance policies, and then stole the premiums for his personal use, authorities allege.
Between 2005 and 2014, Branstetter targeted his victims, many of them seniors, through his business LifeCo. He convinced many of them to surrender valid policies to buy life and disability products he was selling under the name AIIA Group, authorities said.
Branstetter's insurance license expired in 2013 and he let it lapse, yet he continued his scam.
A $4.3 Million Ponzi Scheme
By the time his Ponzi scheme was discovered, Levi David Lindemann, 40, of Stillwater, Minn., had defrauded 50 clients of a total of $4.3 million over a five-year period.
Lindemann was sentenced in a U.S. District Court to 74 months in prison after pleading guilty to federal mail fraud and money laundering in connection with the sale of annuities and investment products, authorities said.
Lindemann was owner of Gershwin Financial, an investment management company that also did business under the name Alternative Wealth Solutions. Through Alternative Wealth Solutions, Lindemann provided financial planning and asset management services. He also sold insurance, annuities and investment products to clients in Minnesota and Wisconsin.
Authorities said the scheme began when Lindemann convinced clients to surrender their retirement accounts to him so he could invest the funds. But instead, he used the money to buy a car and repay other investors through what authorities allege were “Ponzi-like” payments.
Clients had no reason to suspect anything was wrong because Lindemann created counterfeit secured notes that “proved” his investments were legitimate, according to the investigation by the Minnesota Commerce Fraud Bureau, and the Criminal Investigation Division of the IRS and the FBI.
Lindemann persuaded clients to entrust him with their money by promising to invest the funds in secured notes or other legitimate investment vehicles.
Lindemann used the funds to pay personal expenses, convert the investments to cash for his own use, purchase a luxury sport utility vehicle and make Ponzi-type payments of promised returns to other investors, authorities said.
By the time the fraud was discovered, he had managed to collect about $4.3 million from 50 clients, authorities said.
He was indicted in December 2015 and pleaded guilty in March.
50 Caught Up In Investment Scam
Four advisors were sentenced in a case that involved marketing phony investments to prospects in eight California counties. For his connection to a $3.8 million swindle involving as many as 50 victims, Julio Gomez, a 44-year-old Southern California sales agent, was ordered to five years of probation and a year in custody after pleading guilty to securities fraud and perjury.
Gomez, a licensed life insurance agent at Masters of Retirement and at American Equity Direct, was the last of four advisors to be sentenced in the case.
Gomez allegedly solicited investors through cold calls, direct mail and free dinner seminars. He promised them guaranteed annual investment returns of 7 percent to 15 percent and no loss of principal, authorities alleged.
All the $3.8 million that was collected from the victims was lost, the California Department of Insurance said.
Other defendants in the case include Richard Provencio, 65, his wife Carmen Provencio, 61, and Carl Battie (a.k.a Hampton), 58, all of whom were sentenced previously.
Richard Provencio, president of the two companies, pleaded guilty to securities fraud, elder fraud and residential burglary. He was sentenced to a 15-year term in the California State Prison.
His wife, who served as chief financial officer of the companies, pleaded guilty to securities fraud. She was sentenced to three years in prison. The Provencios are from San Clemente.
Carl Battie, of San Diego, pleaded guilty to securities fraud, elder fraud and conspiracy.
False Accounts and Illegal Commissions
A California life insurance agent was charged with using false information to create accounts that netted her more than $67,000 in illegal commissions.
Teresa Marie Davis, 52, of Pomona, used the names of businesses to establish employee payroll accounts. This which signaled to insurance companies that the employees were eligible to apply for insurance policies, according to the California Department of Insurance.
Davis, a former licensed agent, submitted 393 insurance applications between March and October 2011 using false consumer information and addresses, as well as the identities of four people attached to fictitious addresses to hide her crime, authorities said.
When premium notices were returned with invalid addresses and the applicants' information turned out to also be fictitious, insurance companies raised the red flag and alerted fraud investigators, authorities said.
She faces four counts of identity theft and one count of grand theft.
Agent Collects DI Benefits While Writing Fake Policies
An Aflac agent working for a Long Island company allegedly wrote policies for nine employees without their consent, the New York Department of Financial Services charged. Not only did the agent collect $23,000 in commissions but he had been collecting benefits due to a previous injury while pulling down his salary as an employee, investigators alleged.
The scam was discovered when Aflac billed the company for the policies, authorities said.
The Case of the Disappearing CD
Paul E. Kottke, 70, of Omaha, Neb., couldn’t produce the proceeds from a $10,000 certificate of deposit to be used toward his client's declining health, authorities said. As a result, Kottke was charged with one count of insurance fraud and one count of theft by swindle.
The client allegedly gave Kottke $10,000 in 1995 to invest in a CD, a sum that increased to $11,000 when the client gave him another $1,000 to invest.
Kottke, a former licensed insurance agent from Burnsville, Minn., sent his client bogus annual statements to reflect principal and interest payments, authorities said.
After the client died, his family asked Kottke to produce the CD’s $22,196.67 balance to pay for assisted living expenses. Kottke allegedly said the family would have to wait for the funds and that the funds would be subject to an early withdrawal penalty.
When the funds never appeared, a Minnesota Department of Commerce Fraud Bureau investigator contacted Prudential about the case but the insurer had no record of the investment, authorities said.
The client was from Apple Valley, Minn.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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