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TAG | viatical fraud

Jun/11

25

Life Insurance Sold to Church Members Alleged Scam by Agents

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In a June 17, 2011, article written by Darla Mercado for InvestmentNews.com, she writes that six life insurance agents claim that Aviva Life and Annuity Co. had consented to the offer of insurance coverage to some 119 churchgoers in Los Angeles.

It was reported that insurance agents, Kazimir Patelski, Glenda Smith-Lee, Napoleon B. Kinney, Cheralynne Bridgewater, Candice H. Hobdy and Rene Williams responded to a lawsuit filed by the insurer in U.S. District Court in the Central District of California.

Mercado writes that originally, Aviva had sued the agents in March, claiming that the six had sold life insurance to the church parishioners in 2009 and 2010 under false pretenses. Wilshire Coast Consultants Inc., a named defendant, was trustee over 119 irrevocable life insurance trusts, each one holding an Aviva policy on the life of a churchgoer, according to the suit.

The carrier alleged that the parishioners were solicited at church for an “endowment program,” which involved taking out a policy on a church member and dividing the death benefits between that person’s beneficiaries, the church and an unknown third party. Aviva claimed that some parishioners who contacted the insurer said they either never paid premiums on the policy or that they paid only the initial premium and another entity made subsequent payments. Indeed, two churchgoers contacted by InvestmentNews in April had claimed that the program was offered as a way to help their church.

InvestmentNews.com reports that in the latest chapter of the litigation, the agents have turned the table, claiming that Aviva is guilty of “unclean hands” and had consented to the very acts it accuses the insurance agents of participating in.

“Plaintiff directed, ordered, approved, and in all other respects, ratified the acts and performance of these answering defendants,” the agents claim in their response. The insurer had “consented to the acts and omissions alleged in the complaint.”

The defendants specifically denied perpetrating a “Choli” or charity-owned life insurance scheme involving the provision of fraudulent marketing tactics, undisclosed premium finance payments and other financial incentives. Choli is a variation of stranger-owned life insurance (Stoli). The agents also denied Aviva’s allegation that the insurer’s producer guidelines don’t permit policy sales to be sold in the manner the agents had used.

The InvestmentNews.com article said that Mr. Patelski and the other defendants acknowledge that people who apply for coverage from Aviva need to answer questions about whether anyone other than the insured will pay for the premiums or whether the insured intends to transfer the policy to another party. However, the defendants denied the allegations, claiming they lacked the sufficient knowledge to determine the veracity of the accusations.

“We are fortunate this issue was discovered early before any claims were made on any of the policies,” Aviva spokesman Steve Carlson said. “Multiple misrepresentations were made to Aviva as part of these transactions.”

If you feel you’ve been allegedly defrauded by any of the above agents who sold life insurance policies through Aviva Life and Annuity Co. , contact Soreide Law Group.  For more information about our services please visit:  www.stockmarketlawsuit.com or call for a free consultation with an attorney at:  (888) 760-6552.

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Jun/11

6

Broker-Dealers Often Keep Insurance Licenses After Being Fired

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In an article from InvestmentNews.com, May 29, 2011, Bruce Kelly writes that Neal Smalbach was fired by a broker-dealer in 2008 for selling securities while he was unregistered, an infraction that got him suspended by the Financial Industry Regulatory Authority Inc. (FINRA) for six months, according to the organization’s BrokerCheck system. It was the second time that a securities firm had let him go. Though he no longer had a securities license, Mr. Smalbach still had a license to sell insurance, and made good use of it — at least for himself, authorities said.

Kelly writes that on April 29, Mr. Smalbach was arrested in Florida by the Pinellas County sheriff and charged with one count of insurance fraud and one count of organized fraud. Each count carries a maximum of five years in prison, along with a potential $5,000 fine. The charges of insurance fraud against Mr. Smalbach, who also has 37 pending customer disputes from his time as a broker, according to BrokerCheck, highlight a persistent problem in the investment advice business:

Registered representatives who permanently or temporarily lose their license to sell stocks, bonds and mutual funds often retain a license to sell insurance.

Although state agencies that regulate insurance agents and securities brokers try to work together to keep an eye on brokers who get fired from either side of the industry, regulators are sometimes limited in their authority because of a lack of information sharing about reps and agents, observers said.

A common criticism among registered reps is that insurance agents who lose a license to sell securities products often sell equity-indexed annuities, an insurance product that is nonetheless marketed as an investment that can compete with a mutual fund or variable annuity.

“It’s been an issue, and still is, among states,” said Joseph Borg, director of the Alabama Securities Commission. “If you’ve been kicked out of one end of the financial markets, you probably don’t need to be in another.”

According to the InvestmentNews.com article, Mr. Smalbach, 48, was selling mortgage insurance policies that promise to pay the balance of a policyholder’s mortgage in the event that he or she dies, according to Jeremy Powers, an assistant state attorney in Florida’s Fifth Judicial Circuit. But instead of mortgage insurance, Mr. Smalbach’s clients were, in fact, sold whole-life policies that were worth no more than $20,000.

“Somebody who’s had the level of problems that [Mr.] Smalbach appears to have had would create a risk for consumers,” Mr. Powers said. “The activities alleged in this case are pretty serious and had the potential to create multiple hundreds of thousands of dollars in victim losses.”

 Smalbach, whose sales practices were profiled last month by the St. Petersburg (Fla.) Times, serve as a backdrop to efforts by lawmakers in Washington and regulators across the country to create a single fiduciary standard for investment advisers, registered reps and insurance agents. This year, a law went into effect in Florida that gives the state’s Department of Financial Services the power to revoke an insurance agent’s license immediately if the agent has his or her securities license revoked.

“Fraud is fraud,” said Nina Ashley, a department spokeswoman.

Kelly reminds us that when confronted with a broker whose securities license had been pulled — but who maintained an insurance license — regulators’ hands are, at times, tied. To take actions against a broker’s insurance license, Ms. Ashley said a specific insurance violation has to be found. “That didn’t always exist,” she said.

Florida already has used the new law to revoke the insurance license of a broker who misrepresented information when selling securities to a senior citizen, Ms. Ashley said. In February, the Florida Office of Financial Regulation permanently barred Jeffrey Donner on charges that he failed to disclose to clients that their accounts would automatically be billed advisory fees of 30% annualized, according to a statement from the agency. Approximately $40,000 in management fees were deducted from clients’ accounts. While Mr. Donner neither admitted nor denied the findings, Florida regulators revoked his insurance license this month according to the InvestmentNews.com article.

THEY ARE FINDING LOOPHOLES

We’ve learned that Mr. Smalbach, however, still has a license to sell insurance products such as life and health policies, and variable annuities, according to the Florida Department of Financial Services’ website.

The broker in question exploited another loophole in the law when he sold stock in a firm called Transfer Technology International Corp., whose shares are currently listed at less than a penny a share. At least a dozen elderly investors, some in their 80s and 90s, bought nearly $1 million of the stock from Mr. Smalbach, according to the St. Petersburg Times. Although he didn’t have a securities license, Mr. Smalbach was an employee of Transfer Technology and could sell shares in the company to accredited investors legally, the newspaper reported.

THEY ARE SMOOTH OPERATORS

Bruce Kelly writes that one longtime client of Mr. Smalbach who invested in the Wesley Chapel, Fla.-based company was Bob Fox, 78, of Sebring, Fla. A client of Mr. Smalbach’s for over a decade, Mr. Fox said he has lost $100,000 in his Transfer Technology investment.

“He was a really smooth talker,” Mr. Fox said, adding that Mr. Smalbach often hurried him through paperwork when buying an investment.

Mr. Smalbach’s former accountant, Robert Ferreira, corroborated Mr. Fox’s statement said the ex-broker often rushed clients through the process of buying investment products, including variable annuities.

“His method was to say, “Sign here, fill in this and that — I’m in a hurry and will fill in the rest at the office,’” Mr. Ferreira said.

If you or a family member have purchased policies through Neal Smalbach or other brokers and experienced a similar situation, contact an insurance fraud attorney for a free consultation on how to potentially recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Jun/11

5

Finra files complaint against David Lerner Associates For REIT Sales to Elderly

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In a June, 2011, article from Bloomberg News, it was written that David Lerner Associates Inc. has been accused of targeting unsophisticated and elderly customers while selling real estate investment trust (REITs) shares without considering whether the illiquid security was suitable for its clients.

David Lerner Associates is based in Syosset, New York, and known for its “Take a tip from Poppy” advertising slogan, misled investors who bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year, the Financial Industry Regulatory Authority(FINRA) said in a disciplinary complaint on its website. The firm denies the allegations, according to a statement.

It was reported in the Bloomberg News article that David Lerner Associates solicited customers for Apple REIT Ten, it provided misleading information about distribution rates for a series of predecessor securities that are now closed to investors, Finra said. The figures failed to show that distributions far exceeded income and were funded by debt that increased leverage in the REITs, which invest in extended-stay hotels, the regulator said.  David Lerner Associates has sold almost $6.8 billion of Apple REIT shares to more than 122,000 customers since 1992, according to the Finra complaint, the industry-funded regulator for U.S. brokerages. Those sales have generated more than $600 million, accounting for more than 60 percent of the firm’s business since 1996, Finra said.

This complaint is the first step in a formal proceeding, Finra said. It isn’t filed in court, and the firm can request a hearing before a disciplinary panel, the regulator said in its statement.

“The firm conducted thorough due diligence of Apple REIT Ten’s offering documents and audited financial statements,” DLA said in its statement. “DLA will vigorously defend these claims. It looks forward to the opportunity to set the record straight and expects to be completely vindicated.”

Also, in the Bloomberg News article it was stated that in September, DLA paid a $255,000 fine for failing to provide required information in connection with the replacement of variable life insurance policies and annuity contracts from November 1998 through February 2004, according to the New York State Insurance Department. A year ago this month, DLA was accused by Finra of overcharging customers on sales of municipal bonds and mortgage securities. That case is still pending, according to Finra’s brokerage records.

If you or a family member have become a victim of the alleged fraudulent schemes of David Lerner Associates, Inc., call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

25

John Hancock to Pay $1 millon to State of Louisiana in Death Benefit Fallout

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In an InvestmentNews.com article by Darla Mercado, May 24, 2011, it was reported that the State of Louisiana will collect about $1 million in a settlement with John Hancock Life Insurance Co. as part of a massive investigation into the insurer’s payment of death benefits. This agreement will go into effect next month, according to an announcement from Louisiana’s Treasury Department. Some 35 states are also participating in the settlement with the insurer.

This is the third such announcement for John Hancock, which last week reached a settlement with Florida that included a $3 million payment to three Florida regulatory agencies. They also agreed to return funds to beneficiaries and to establish a $10 million fund to facilitate payments to beneficiaries who can’t be contacted. In April, John Hancock reached a settlement with California valued at $20 million.

In the InvestmentNew.com article it was reported that an audit into John Hancock revealed that the insurer failed to report unclaimed life insurance benefits properly, according to Louisiana’s Treasury Department.

“In many cases, those who were owed benefits because of the death of a loved one were never even notified,” said Louisiana’s treasurer, John Kennedy. “We will do everything we can to find these families and return the money that rightfully belongs to them.”

Mercado reports that the announcement happens to fall on the same day that regulators in California are holding a hearing with MetLife Inc. executives. State officials plan to question the execs about the carrier’s use of the Social Security Administration’s master death list, as well as its process for notifying beneficiaries who are owed money.

If you or a family member have become alleged victims of non-payment of death benefits through John Hancock Life Insurance Co, or MetLife, or any other life insurance company, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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May/11

19

Lawyer Pleads Guilty in Major Insurance Fraud Case

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In a May 18th., 2011 article in the Miami Herald,  Jay Weaver reports that a prominent attorney whose fortune rose with a Fort Lauderdale viatical insurance company at the center of a $1.25 billion investment fraud case pleaded guilty Wednesday to a single conspiracy charge, marking a major development in the long-running prosecution of executives and others at Mutual Benefits Corp.

Fort Lauderdale attorney Michael McNerney, 62, admitted that as its lawyer, he helped the now-defunct company lure thousands of investors worldwide into buying dubious life insurance policies held mostly in the names of people dying of AIDS.

Weaver goes on to say that McNerney’s role was part of an alleged investment scam lasting from 1995 to 2004 that authorities say rivals the $1.2 billion Ponzi scheme of disbarred Fort Lauderdale lawyer Scott Rothstein, convicted last year of selling fabricated legal settlements in a separate criminal case. The Mutual Benefits and Rothstein cases rank as Florida’s largest fraud prosecutions.

The McNerney guilty plea to mail-and-wire fraud conspiracy, which carries up to five years in prison, marks the 10th person to be convicted in the Mutual Benefits prosecution in Miami federal court. He will be sentenced Aug. 26 before U.S. District Judge Adalberto Jordan. With his plea, McNerney avoided a potential sentence of up to 20 years. As part of his deal, McNerney will cooperate with prosecutors on how the alleged life settlement racket was directed by Mutual Benefit’s senior executives

The Miami Hearld reports that the two top executives of the company, Joel Steinger and brother Steven Steiner, along with another Fort Lauderdale lawyer Anthony Livoti, are scheduled to stand trial in early 2013 — but that date could be moved up with McNerney’s plea. He was scheduled to go to trial by himself early next year. Steinger and Steiner were planning on using a defense based on their reliance on McNerney’s legal counsel for all their business decisions regarding Mutual Benefits’ sale of some 30,000 viatical insurance policies to investors who lost about $837 million. But that defense may be in danger now that he has pleaded guilty to being a player in the alleged conspiracy.

It was reported that McNerney, a 1973 graduate of the University of Florida College of Law, admitted that he not only encouraged investors to buy the questionable viatical policies, but he also provided “legal cover” for Steinger and others to perpetuate the alleged fraud, according to a “factual statement” filed with his plea agreement.

Wednesday, McNerney confessed that he schemed with other executives at Mutual Benefits by misleading investors about the life expectancy of insured beneficiaries; the use of funds raised from investors; the risks associated with the investments in viatical settlements; and the payments of insurance premiums on those policies.

“This is a major breakthrough in the prosecution’s case because it shows the defendants were not relying on the advice of an independent attorney,” said Ryan O’Quinn, a former federal prosecutor and Securities and Exchange Commission attorney, who had been involved in the case since 2004. “It shows Michael McNerney was a knowing participant in the fraud, standing side by side with the co-defendants.”

The Herald article goes on to say that in January 2009, the U.S. attorney’s office unsealed the sweeping 25-count fraud indictment against Steinger, identified as Mutual Benefits’ principal executive, brother Steiner, the company’s founder, as well as McNerney and Livoti. The indictment, alleging a conspiracy to commit wire fraud and money laundering, was filed nearly five years after state and federal regulators shut down Mutual Benefits. The company was placed in receivership.

The company, Mutual Benefits, bought life insurance policies of AIDS patients and the elderly and sold the policies to investors, who stood to collect benefits when the insured died. Mutual Benefits promised investors the investments were “safe.” But prosecutors alleged Steinger hired doctors to attest to life expectancies for the insured. By claiming the beneficiaries were near death, prosecutors alleged, Mutual Benefits could sell low-value policies at a higher price. But the longer the insured lived, the more premium payments had to be made to prevent the policy from lapsing and becoming worthless.

According to Jay Weaver of the Miami Herald, prosecutors further alleged that Mutual Benefits was a massive Ponzi scheme, using money from newer investors to pay premium obligations on older policies.

If you or a family member have purchased policies through Mutual Benefits, Corp, or other viatical companies, and become the victim of the life-expectancy predicitons, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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May/11

11

Deceptive Insurance Practices

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The following are some of the deceptive practices involving insurance sales:

*The definition of “twisting” insurance is when the insurance agent, for the purposes of generating his or her commission, persuades the client to lapse, surrender, or otherwise terminate an insurance product and replace it with another product that provides little or no economic benefit to the client. Often, the accumulated cash value of an older policy is used to mask the true cost of the new policy, allowing the agent to provide a favorable (but misleading) comparison.

*”Churning,” sometimes referred to also as twisting in the insurance industry, is an attempt by an unscrupulous agent from an insurance company to cancel your existing policy and replace it with a new one, drawing down your cash value (called “juice” in industry jargon) to pay for it. This activity generates additional commission for the agent and may result in your having to pay more down the line.

*”Vanishing premiums” refers to the inflated claims about the length of time a policyholder will need to pay premiums, such as “you only have to pay premiums for seven years, and then the policy will pay for itself.” Unfortunately, many consumers who were sold vanishing premium policies in the 1980s and 1990s later found they needed to pay more premium dollars to keep their policies from lapsing.

Before it was made illegal, some insurance agents used a sales pitch for universal life insurance that suggested the premiums could vanish.

The pitch went like this:

You start out by putting a large, lump sum into the universal life policy. The policy has the potential for making money, much like an investment (but it is illegal for an agent to sell life insurance by calling it an investment). The company may pay interest, if the company has a good year. If the company does have a good year, the percentage of interest could be very high. If you left the interest and dividends in your policy to build up with your cash value after a few years, you could have enough cash value in the policy to pay the premiums.

The “vanishing premiums” scenario depended on three big “IFs:”

Only if the company has very good years. Only if the company pays high dividends. Only if you do not withdraw cash value.

*The term “sliding” means an agent slips you extra coverage you didn’t ask for — but do pay for. This can easily add $100, $200 or more to your premium.  The agent says it’s part of a “package,” or won’t mention the coverage at all. The motor club memberships, accidental death coverages and guaranteed renewable life insurance are three policies that agents sometimes sell to policyholders without their knowlege.

The primary motive in these scenerios is financial profit.  These practices not only are misleading and unethical, but can be illegal.

If you or a family member have become victims of these alleged insurance frauds, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com. 
We stand up and fight for the rights of consumers. Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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May/11

6

Florida and California Insurers’ Death Benefit Payout Practices Targeted

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In an April 26th, 2011, article from InvestmentNews.com, Darla Mercado writes that attorneys have set their sights on life insurers as state regulators investigate the carriers for their failure to pay out death benefits or submit the money to the state in a timely fashion, allegedly while still collecting fees in some cases, and leading the way is California’s controller and insurance regulator, which announced jointly a subpoena and investigative hearing of MetLife Inc.’s practices on paying death benefits.

Ms. Mercado goes on to say that the preliminary findings from a three-year audit by the state revealed that for 20 years, the carrier failed to pay benefits to named beneficiaries or the state after learning that a customer had died. MetLife’s hearing has been set for May 23. That same audit, which covered 21 life insurers, led to a settlement between John Hancock Financial Services Inc. and California on Friday. That day, Florida’s Office of Insurance Regulation announced a May 19 hearing on the same topic. That office also had subpoenaed MetLife and Nationwide Life Insurance Co., asking that the companies bring representatives to discuss the carriers’ practices.

The regulatory activity has garnered the attention of plaintiff’s attorneys, who are watching the drama unfold and expect some litigation fallout as a result. According to the InvestmentNews.com article, the key legal question is what exactly were the insurer’s responsibilities in performing the due diligence to find the beneficiaries. Carriers use the Social Security Administration’s death master list database for reference.

The beneficiaries of these policies are supposed to submit a claim for the death benefits, but if a carrier doesn’t hear from a beneficiary and has information on hand to show that an insured person has died, then at what point does the company escheat the money to the state?

It was noted that aside from following regulatory and statutory requirements, the insurer used its electronic death master file in 2006 and 2007 to identify individual life insurance policies for which a death benefit was due but no claim had been filed to date. The carrier will expand its use of the electronic death master file to identify potentially payable policies this year.

Depending on applicable state law, when beneficaries can’t be located within 3 to 5 years after the company receives notice of a death, the policy proceeds are considered unclaimed and go to the appropriate state. MetLife escheated $51 million to the states in 2010.

If you or a family member have become victims of this alleged fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. 
We stand up and fight for the rights of consumers. Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Apr/11

29

Steven Brasner Charged With Scamming Seniors in Insurance Fraud

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Steven M. Brasner, an agent with Infinity Financial Group LLC in Davie, Fla., was arrested April, 2010 and charged with 22 counts of grand theft, insurance fraud and aggravated white collar crime.

Axa Equitable Life Insurance Co., which sued Mr. Brasner in 2008 in connection with this case, had notified Florida’s state regulators of the suspicious policies. Axa notified the regulators in adherence to state rules that require carriers to report suspected fraud activity.

According to an InvestmentNews.com article, officials in Florida, including the state finance chief and attorney general, charged that Mr. Brasner created a scheme to sell policies taken out on the lives of senior citizens on the secondary market, then identified his victims and scammed them into buying a policy. As part of the scheme, he falsified the clients’ net worth. Though it’s legal to sell policies over the secondary market, purchasing insurance with the express purpose of selling it violates state insurable interest laws.

Brasner made more than $1.6 million in commissions on the policies, based on some $78 million in total death benefits, according to regulators.

Florida State officials also claim that Mr. Brasner told the senior clients that he would pay them between 3% to 5% of the face value of the life insurance policies following the two-year contestability period when the contracts were sold over the secondary market. He also allegedly told the elderly Axa clients that they wouldn’t have to pay for the premiums out of pocket.

If you or a family member have become victims of this alleged fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. 
 

We stand up and fight for the rights of consumers.

Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Apr/11

28

INSURANCE FRAUD IN FLORIDA

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The State of Florida has some of the strictest insurance fraud laws in the country.  Soreide Law Group, PLLC, is currently representing clients who have been defrauded by their insurance agents, financial advisors, and/or stock brokers in insurance transactions involving:
  • Viatical Settlements;
  • Life Settlements; and
  • Stranger Originated Life Insurance or (“STOLI”) transactions.
 
We are now seeing more and more stockbrokers and financial advisors suggesting their clients purchase large universal life insurance policies with the promise of a big profit on resale after the two-year contestability period passes. There is a promise that the profit from the sale would not only cover the premiums, but would put a profit in the insured’s pocket with enough money to purchase another policy, and do it all over again. Unfortunately, these brokers are over promising and grossly over representing the legality and liquidity of the resale of the insurance policy, especially when it was purchased for the sole purpose of reselling. Part of this alleged scam may include falsifying medical records. We have seen many similar violations with respect to life settlements and STOLI transactions.
If you or a family member have become victims of this alleged fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers.

Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Apr/11

26

John Hancock to Settle Calif. Death Benefit Investigation Worth $20M; Ongoing Investigation in Florida

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In an April 22, 2011, article on Investmentnews.com written by Darla Mercado, she writes that California announced a settlement with John Hancock Financial Services Inc. after an investigation revealed that the carrier failed to deliver deceased clients’ death benefits promptly to the tune of $20 million.

This announcement follows a three-year audit investigation of 21 life insurers performed by the state’s controller, John Chiang, in an attempt to determine whether the carriers were complying with California’s unclaimed property laws.

The article goes on to say that those escheatment laws require businesses to submit lost or abandoned financial accounts to California after three years of inactivity in order to protect clients’ property from getting lost during mergers or bankruptcies, or from being depleted by fees. Other states have similar unclaimed property laws.

“While John Hancock is the first to be held accountable, it will not be the last,” Mr. Chiang said. “I am prepared to pursue all actions necessary — including litigation — to bring the rest of the industry into compliance.”

Investmentnews.com reported that California’s investigation revealed that life carriers failed to pay up death benefits to clients’ beneficiaries. Instead, they would draw from the policies’ cash reserves to pay premiums even after the client had died, according to the controller’s announcement. Once the policy was fully depleted, the insurers would cancel coverage.

The investigation also revealed that carriers did not routinely cross-check the owners of the dormant accounts with government databases listing the names of the dead. In other situations, the carrier knew the policy owner was dead but still failed to tell the beneficiaries, according to Mr. Chiang’s office.

Ms. Mercodo reported that in one of the John Hancock cases, the carrier issued a policy in 1963 to a client who died in 1999. John Hancock allegedly continued to pull premium payments from the cash reserves until the policy was canceled in 2009. Eleven years after the customer’s death, the carrier still hasn’t paid the beneficiaries or sent any of the death benefits to the state controller’s office, according to the controller.

In the Investmentnews.com article we learn that the same activity occurred with annuity contracts, according to Mr. Chiang’s office. John Hancock issued a contract in 1991 to a client who died four years later. The insurer’s files reveal that the deceased client’s mother called in 2002 to report the client’s death. Even though John Hancock noted in its files in 2005 that the client had died, the company allegedly didn’t pay out the death benefits to the client’s estate until 2009, the investigation revealed.

It was reported that aside from reuniting owners or their heirs with more than $20 million of death benefits and matured annuities, John Hancock also will have to restore the value of some 6,400 affected accounts going back to 1992 and pay California compounded interest of 3% on the value of the amounts held from 1995 or from the date of an affected policy owner’s death, whichever is later.

“John Hancock is outraged by the unfounded allegations and characterizations contained in today’s press release by the California controller’s office,” the insurer said in a statement. “Indeed, by its actions today, California has violated the very agreement that it negotiated and signed with John Hancock.” The insurer denies any allegations or characterizations of wrongdoing.

Florida Too

Carriers’ compliance with unclaimed property laws also will be the topic of a May 19 hearing in Florida, hosted by that state’s Office of Insurance Regulation. The office subpoenaed Metropolitan Life Insurance Co. and Nationwide Life Insurance Co, asking that the insurers send representatives to discuss the carriers’ practices.

It was reported that an investigation in Florida revealed that some carriers use the Social Security Administration’s death master file to find out about a client’s death and stop annuity payments, but fail to use that information to look into claims for death benefit. The state is a part of a national task force looking into carriers’ claims settlement practices.

“This appears to be an industry practice,” said Jack McDermott, a spokesman for Florida’s Office of Insurance Regulation. “We’re looking at a multitude of companies — some of the largest ones in the country.”

“Nationwide will review the information from the Florida Office of Insurance Regulation and will cooperate with their inquiry,” said spokesman Chad Green. “We stand by our business practices and are committed to serving the needs of our customers.”

“MetLife always fully cooperates with inquiries from regulators,” said spokesman John Calagna. “We will address whatever questions the Florida insurance department may have regarding this matter.”

Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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