Life insurance agent was involved in a ponzi scheme. need options

Discussion in 'Life Insurance Forum' started by Jeff N, Nov 15, 2017.

  1. Jeff N
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    Jeff N New Member

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    This is a long story, so thank you to anyone who takes the time to read through. I will strive to tell this in "Cliff's Notes" form. I am also going to leave this as anonymous as possible by leaving out my full name and state of residence. Hopefully that is understandable.



    My parents began working with a financial planner who introduced the “Infinite Banking Concept” to them sometime around the year 2000. They did well with this concept and decided to venture in to the planner’s next big thing, which was hard lending. This started to happen around 2003. From then until 2012 I was never a customer of this agent, but, in hearing my parents say they were happy, had referred probably 10-20 people to this agent, many of which purchased policies, at least. In 2012 I saw the agent at a family gathering (agent was THAT close to my family) and they offered to meet with me to discuss a life policy, which I did without thinking twice. We went over the numbers and drew up the policy and, as I was leaving, the agent said, “your family has always been really great to me, so I’d like to do this thing to help you get started. I AM GOING TO PAY YOUR MONTHLY PREMIUMS FOR THE FIRST YEAR.” My premium is $810 per month for about 650,000 of whole life insurance. At the time, I justified this without thinking twice about it and just believed the agent was basically giving up their commission as a favor. Given the long term existing relationship, it didn’t seem all that off to me. When I worked in sales, many years ago, I gave up commission so that friends and family could enjoy a better price on what I was selling. It simply didn’t occur, at that time, that there were probably regulations involved – because I saw the agent as trustworthy.

    Fast forward about a year and the agent approached me about another policy, this time telling me that they would get a cruise or something if they got a few more policies written before the end of the year (mind you, it’s the second week in December) and that they would pay this policy up to two years. If I could not afford, or didn’t want it at that point, I could cancel the policy. I relented.

    Fast forward 1.5 years and I am getting phone calls from friends that the agent is not paying them on their “hard lending” investments. The agent was also not getting back to them right away as previously. When the agent did get back the people would be told that their investment was rolled over into a new opportunity and would be there for 1-2 years, BUT they would give them a slightly better rate than previously offered if they would leave their money invested. Many times people would be ok with this arrangement and the agent showed up at another one of my family functions about a month later. We talked for a while, as usual, and the agent offered me an explanation for what was going on with the hard lending business. Basically it was some made up story that seemed believable enough and, at the end of the event asked me if I knew anyone else that would benefit from their services. I had decided that until I hear from some of my friends I would not give out any other names so I told the agent that nobody was coming to mind, but that I would think about it. The agent then gave me a verbal invite to their office holiday party, which I have attended for the last couple of years. I went and ran into the same people I always had previously and everything seemed normal. Soon thereafter, my parents were telling me that they were not being paid on the money they had invested in hard lending. My heart stopped. Then they started telling me about their friends who are all having the same problem. They told me it had been happening in waves for about a year or so, but didn’t want to say anything until they were fairly sure something was up. It immediately occurred to me that we were involved in a ponzi – at least I was at 60% certainty. I told my parents and friends to start asking for their principal back, but to only ask for very small amounts and see what happens. Some people got a little and, lucky me, my spouse and I got the $10,000 back that we invested, which I believe was calculated – can’t screw the people who potentially know other investors.

    In April of the next year, a friend of mine who took out a policy with the agent told me the agent gave him some bogus advice about taking money out of an IRA or some other retirement account – that if he had something to put it into, he could write it off. Unfortunately, he could not write it off even though he had purchased an apartment building to renovate. He lost somewhere around $40,000 to the fed because the amount of money he pulled out placed him over the threshold for the AMT.

    Fast forward to August 2016 and we get word the agent has been investigated by the Attorney General’s office and was shut down two months earlier. Since then the agent has plead guilty and is awaiting sentencing – which has been continued for some time now.

    When I heard the agent was shut down, suddenly I realized I better look into some things – he did illegally pay for my premiums as I live in a state that makes it unlawful for the agent to do that. I also realized I probably owe income tax on that money. And I also realized that other people’s money probably helped pay for the first or second (or both) policies and that is what makes me ill. We have a friend of the family who lost her husband, but didn’t lose everything else because he had the foresight, years before becoming ill, to take out a ton of insurance on himself. He was in his 60’s when he passed, but he left her with more than a million – nearly all of which she gave to a hard lending scam. She has next to nothing now and is in her late 70’s.

    We have another friend who lost around $300,000 and several others who have experienced varying degrees of loss.

    So there is the back story. I am going to cancel this policy and I am wondering just one thing:

    The money that was given to me I would like to pay into the restitution fund for these victims, but I do not have the $10,000 on the first policy or the $6,000 for the second. I’ve paid in close to $50,000 since I have taken out the policy – is there any viable way to walk away with what I’ve put in minus what wasn’t mine in the first place? If so, who in an insurance company would I have to speak with?

    One other question I have is would they pay on the policy should something happen to me or would the fact that the agent gave me the monthly premiums make my policy invalid. I am asking this as a way to find out if that would be grounds for a full refund minus restitution.

    By the way – the agent was not a licensed financial planner. The agent was licensed to sell life insurance, but nothing beyond that. The odd thing – no record about the agent’s license being revoked. Weird.

    Well that’s it for now. If there is something I can clarify, please let me know and thank you, once again, for reading about this massive screw up I unknowingly became a part of.



    Thank you.
     

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  2. DHK
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    DHK Guru

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    First, your entire situation just flat out sucks. But I'm glad you want to help do what's right.

    Sure. Take out a loan against the cash values of the policy and repay it back to your policy. Just ask for a loan request form and the company will take care of it for you. Pay your loan interest + your premiums and repay the loan amount when you can. (Btw, that's the basic premise of infinite banking using a life insurance policy.)

    Your policy is still valid. (However, I've heard about forged policies in other cases, so if you haven't, you might want to double-check that you have a real policy with the insurance company.) You could file a complaint with the insurance company and/or department of insurance, but it doesn't sound like you want to do that. The company could refund all your premiums and cancel your policy, but you'd have to contact the company if you wanted to complain about it. No reason for the insurance company to not pay a claim. As long as the policy is in-force and in good standing, you'll be fine.

    The term "financial planner" is not regulated in any but 3 states - AR, TN, and SC (I believe). I know you didn't want to give your home state away, but it's in your profile. The term "financial planner" is not regulated in Arizona. The terms "investment advisor", "registered representative", and insurance agent are all regulated terms. Just FYI.

    Also, Arizona doesn't report company appointments, lets their drivers licenses expire at age 65, and other things, so it doesn't surprise me that the license isn't being reported as revoked.
     
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  3. pfg1
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    pfg1 Guru

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    That whole think sucks. I don't understand what drives folks to do that but stuff like this seems to happen alot.

    I wouldn't cancel your policies. If you wanted to help do the right thing...do like DHK said, take a loan against the cash value.

    You bought the policies to protect your family and use for IBC, and have paid a good bit on them. It wasn't your fault if the other party wasn't square with you., don't take a bath personally because of his wrong doings.
     
  4. walthamny
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    walthamny Guru

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    I would suggest you talk to an independent insurance agent about your own policy. While your policy is most likely valid, it may make sense to replace it and start new. This is also the time to consider asking the insurance company to payback premiums or not.

    Usually, insurance companies have 2 years to go back and cancel a policy in the case of errors/misstatements on the application. I suspect you did not go through the life insurance application questions one by one, he filled them out for you and you signed it. Or may be you signed blank applications. He also may have arranged others to take medical exams for you or create fake medical records. So I don't want to say that your policy is valid. In some cases, the insurance company can void the policy beyond the 2 years. It is unlikely, but legally possible. Because you did not know about the fraud at the time of application, you would find most insurance companies very flexible to work with you.

    I would start with getting a copy of the policy and the insurance application, inforce illustration and see an independent experienced agent.

    As for helping others, I am with you 100%.
     
    DHK likes this.
  5. VolAgent
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    VolAgent Guru

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    Timeout.

    Ponzi schemes do not always unwind the way you think they do. Before you cancel a policy or pay money to anyone, you should find out exactly what is going to happen. If you may recall, when Madoff was unwound, the Trustee went after those who had received money over the years to have it paid into the restitution fund. So you may think you can keep what you have received, but that may not be the case. You and your family get to share "equitably" in the pain. I put it in quotes because it is not necessarily what you think is fair, but what the court and trustee think is fair.

    The life insurance policy that he paid for, if valid, is an asset you received from his Ponzi Scheme and thus may be recovered by the Trustee. So first I would reach out to whoever is administering it and see what is going to happen and/or consult with an attorney.
     
  6. pfg1
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    pfg1 Guru

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    Good point Vol...and correct. I know a few folks that got Madoff'ed in a small deal that went south. They not only came after the reps/solicitors but ALSO any client that benefited in any way. Its interesting that they do that... considering the clients are the ones that usually end up unknowingly getting screwed.
     
  7. VolAgent
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    Again, it is to be equitable. No benefiting because you got in early or the person running the scheme decided to pay you for whatever reason. Maybe it was a bribe to keep quiet, you were family or close friend, influential, who knows. So even if all you received was your investment back, you may be forced to surrender some of it to the Trustee to be disbursed to those who didn't get any of their investment back.

    So my advice is to either retain your own attorney, which is probably best, or to reach out to the Trustee handling it before doing anything.
     
  8. Caryn Montague
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    Caryn Montague New Member

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    Have you contacted your Arizona Department of Insurance? That is your first step.

    Departments of Insurance have counsel on staff that reviews issues such as this after a (usually very qualified) employee reviews the issues and gathers the information. They will know if the insurer or agent has any history that is problematic and they will know if the plan(s) that you, your parents and friends were sold are available for sale in AZ.

    On the outside chance that this is not a real life insurance policy or is not eligible to be sold in AZ, the Department will know immediately. If this product was something designed to look like life insurance, the Department will be able to engage with other involved agencies, such as FINRA or SEC, to help resolve this situation.

    What you allege is high stakes and a problem to many. Please take it to the Department of Insurance immediately and let us know how you make out with them. Good luck.
     
    Last edited: Nov 17, 2017 at 4:15 PM
  9. marindependent
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    marindependent Guru

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  10. Bobby39
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    Bobby39 Expert

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    Check the agents background at their state's department of insurance.
     
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