Washington State Attorney General Sues Estate-Planning Firm

OLYMPIA, Washington, March 8 -- Washington state Attorney General Bob Ferguson issued the following news release:

Attorney General Bob Ferguson filed a consumer protection lawsuit today against CLA Estate Services, Inc. and CLA USA, Inc. for operating a "trust mill" by misleading hundreds of Washington seniors about estate planning, and persuading them to purchase high-commission insurance products.

The Texas-based company enticed seniors with a "free lunch" to attend workshops about estate planning. During the workshops, CLA salespeople encouraged participants to set up living trusts and buy CLA's "Lifetime Estate Plan" packages.

In reality, the ultimate goal was to obtain detailed financial information to sell complex financial products seniors did not understand. The "Lifetime Estate Plan" packages included a referral to an attorney and annual review meetings, under the guise of reviewing the estate plans, where insurance agents, sometimes deceptively posing as investment advisors, attempted to sell annuities and life insurance.

CLA did not adequately disclose that these products could lock up seniors' assets for years and carried hefty penalties for early withdrawal. These products earned CLA millions in commissions at substantial cost to consumers.

Since 2009, CLA has conducted more than 700 "free lunch" seminars, attended by more than 11,000 Washingtonians. In Washington alone, the company sold more than 1,200 Lifetime Estate Plans earning CLA more than $2.6 million, and sold more than 700 annuities earning CLA more than $4.5 million in commissions.

"CLA's business model is a classic 'trust mill' scheme." Ferguson said. "The company made a profit off deceptively marketing estate planning and financial products to retirement-age Washington consumers. I am holding individuals and businesses that prey on seniors accountable."

The lawsuit, filed in King County Superior Court, alleges that CLA violated the Consumer Protection Act and the Estate Distribution Documents Act by misrepresenting trust and probate law at their "free lunch" workshops, deceptively marketing annuities, and marketing estate distribution documents without a license to practice law in Washington.

The company trained its workshop presenters to set up one-on-one meetings with attendees as soon as possible after the "free lunch" workshops to minimize the amount of time the clients have to think about whether to purchase a "Lifetime Estate Plan" or discuss it with family or an independent advisor.

CLA insurance agents then used annual meetings with consumers who purchased Lifetime Estate Plans to market high-commission insurance products, such as indexed deferred annuities, that use complex formulas that are extremely difficult to understand. These annuities lock up seniors' retirement savings, allowing them to make only nominal withdrawals during the 10-year deferral period without incurring high surrender penalties. Many seniors incurred substantial penalties for early withdrawal of funds they needed for living expenses.

When marketing the annuity products to seniors, in some cases CLA agents did not disclose the consequences of early withdrawal and falsified seniors' annuity applications to ensure insurance companies would approve them. Agents would sometimes have seniors sign blank application forms, then the agent would fill in fraudulent information.

Not only did agents fail to disclose the penalties for early withdrawal, they sometimes convinced seniors to change their investments from one annuity to another annuity in order to earn a second commission. For example, a CLA agent convinced a senior to move all of her retirement savings into annuities, later persuading her to reinvest money from one of the annuities into another. The agent did not disclose to her that she would incur a penalty over $20,000 to make the transfer.

One agent and a defendant in the lawsuit, Mitchell Johnson, was one of CLA's top insurance salespeople. From Johnson's Washington sales alone, CLA earned more than $930,000 in commissions, and Johnson earned more than $278,000 in commissions.

CLA agents including Johnson did not adequately disclose the terms of the annuities to clients. Johnson and other agents also provided investment advice to seniors without being registered to do so.

For example, after falsely representing that he was an investment advisor, Johnson convinced a senior to transfer $600,000 held in stocks and an IRA to purchase an annuity. Johnson lied about the senior's assets on her annuity application and failed to advise her of the surrender penalties and tax consequences she would incur if she withdrew funds early. She was ultimately charged over $37,500 in surrender penalties for withdrawals she made to pay her living expenses and help her family.

On one annuity application, Johnson misrepresented a senior's assets as including a second home worth $215,000 and liquid assets worth $588,000. The senior owned no real estate other than her mobile home and the land it was on, and liquid assets equal to about half of what Johnson listed on the application.

"CLA claims they give their customers 'peace of mind,'" Ferguson said. "That is not the case for customers we have interviewed -- just the opposite."

Ferguson's lawsuit asks the court to order CLA and Johnson to stop their unlawful conduct. It also asks for consumer restitution and civil penalties for up to $2,000 per violation, in addition to costs and attorneys' fees.

Consumers who wish to file a complaint regarding CLA Estate Services, Inc., CLA USA, Inc., and Mitchell Johnson are encouraged to contact the Attorney General's Office.

Assistant Attorneys General Trisha McArdle and Cindy Alexander are handling the case for the Attorney General's Office.