MetLife Fined $25 Million for Variable Annuity Sales Violations

Variable annuities are complex investment products. FINRA charged that MeLife’s salespeople failed to help its customers properly compare old and new versions of the annuities, leading some people to change to a newer version of the annuity that was more expensive and less customer generous than the older version. Each sale of a new product typically includes a commission of 5% to 7%, something that encourages sales of newer annuities.

FINRA looked through 35,500 replacement applications made to MetLife and found that 72% of them “misrepresented or omitted at least one material fact” relating to the costs and guarantees of customers' existing variable annuity contracts. Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said that "Variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning. Firms engaging in this business must ensure that the information on the costs and benefits of these products provided to customers is accurate, and that their registered representatives are sufficiently trained to understand and explain the risks and complex features of what they are selling."

MetLife sold at least $3 billion worth of variable annuities through replacements between 2009 and 2014. Insurers began to change their variable annuity contracts after the stock market decline in 2008 revealed the financial risks they faced in offering extremely generous benefits to investors.

The Settlement Channel is a featured network of Sequence Media Group.

Posted on May 5, 2016 .

CBS News takes on Maryland lead paint structured settlement cases

Last week those of us in the structured settlement profession were treated to a CBS Evening News story covering the uproar over the purchasing of settlement payments by a number of factoring/settlement purchasing companies. This followed on a series of stories first reported in the Washington Post last year, along with subsequent legislative changes in both Maryland and Virginia tightening the process required for a party to sell their payments to a third party. Among the companies discussed in the report were Stone Street Capital, and interviews with Attorney Earl Nesbitt who is a long time industry spokesman in his role with NASP. 

Link to the CBS News original story here. 

So what you might ask? Isn't it a good thing that the factoring companies are being exposed for alleged abuses? In a way, yes. I don't think I've spoken to a single factoring or settlement purchasing company who doesn't agree that certain abuses needed to be addressed and procedures tightened in the court approvals that already governed these transfers. 

 

 

However, if you watch this CBS report and take in the sound bites regarding the pathetic lead paint damaged woman they profiled, you can't help but come away from it asking a very simple question. "If she was so clearly impaired and incapable of making even simple decisions, why weren't her funds placed or paid into a trust or guardianship?" This will of course elicit the usual protests from my friends at NSSTA and the structured settlement primary markets that I'm some how implying that the attorney's, brokers and settlement professionals were somehow incompetent. So let me address directly my thoughts on this and some suggestions for trial lawyers and others who wish to avoid seeing their clients sharing equally tragic stories in the future.

  • If you have a class of victims who are either incompetent, brain damaged or have a very high probability of being incapable of managing their affairs, you should set up an asset protection trust, a guardianship, a settlement trust, etc. There are multiple ways to insure that the structured settlement payments go into a managed trust where these vulnerable injury victims can be protected long term. Specialized trust companies, such as First Capital Surety & Trust in Milwaukee, WI, offer a wide range of services tailored specifically for personal injury victims that could prevent most of these abuses. 
  • Be sure to engage a PLAINTIFF settlement planner to work with the trial lawyer, the client and the rest of the team. It has been noted in recent litigation involving a major defense broker where in they stated in testimony that they believe they owe no duty to the plaintiffs for their long term financial protection. Their duty is to the defendants. The solution is to bring in a settlement professional who represents the long term interests of the plaintiff and can assist in the type of planning that protects the future payments. Dual broker arrangements where both parties are represented is the industry norm these days, single broker deals are the exception. 
  • Don't throw the concept of structured settlements under the bus! The long term, or life time, payment options offered by a structured settlement are ideally suited to injury victims who struggle with decision making, financial concepts and are vulnerable. However, you have to provide a post settlement management process that prevents them from making decisions with out the assistance or approval of a guardian, trustee or adviser. Defense brokers by their very business model do not provide long term, personal service to structured settlement beneficiaries. They have no idea in almost every case that payments are being factored or sold. The client must have a party to rely upon over time to hold off the solicitations to sell their payments if it's not suitable. 
  • Does a long term guardianship or trust cost some money or potentially reduce the amount allocated to a structured settlement annuity? Yes absolutely it adds cost and may result in less premium for the brokers. However, isn't the benefit of protecting people from unwise and reckless financial decisions well worth the price of having a professional trust company or guardian watch over the assets? 

In short, the structured settlement profession, who put the annuity payments in place at settlement, needs to expand the degree of services offered to match the obvious needs of the plaintiff. The best advocate for that is a plaintiff oriented structured settlement expert, of which there are hundreds to choose from who take this long term planning responsibility seriously. The legislative changes are welcome and needed on the sale process, but the structured settlement profession needs to also up their game to not just sell and annuity and wish the claimant luck in the future. We can do better, get paid for it and provide real value if we communicate the message to trial lawyers effectively. 

Structured Settlement Broker in Texas Indicted for Fraud

Woodyard, 65, a well-known structured settlement broker, was a long time broker and associate of the parent company in this case, called Ringler Associates Incorporated, or RAI. Under RAI was a company called Ringler Associates of North Texas Incorporated, or RANT, as well as another company called Ringler Insurance Agency, and others doing insurance business on behalf of RAI. RANT would settle insurance claims mostly by selling structured settlements through annuities that were being sold through Ringler Insurance Agency. Annuities are commonly used in structured settlements to compensate personal injury victims or workers’ compensation claimants.

ACE entered the picture because of insurance policies covering United Nations employees who were killed or injured on the job. ACE used Roger Rich & Co. and Vanbreda International to handle beneficiary claims against ACE. Roger Rich and Vanbreda purchased several annuities from RANT. The indictment alleges that Woodyard’s misconduct came into play at that point. Woodyard allegedly instructed Roger Rich and Vanbreda to send funds directly to him, instead of MetLife, to purchase annuity contracts. By gaining unlawful access to ACE funds like this, Woodyard was able to bypass the normal role of the insurance company, preventing MetLife from not only issuing legitimate annuity contracts to make agreed upon payments, they also circumvented the Ringler Insurance Agency and depriving them of commissions on annuity contracts they would typically receive on legitimate sales. Woodyard would thus retain all commissions PLUS the premium which was to have been paid to Met Life. Wired funds from London are reported to total over $4.6 million. 

In an effort to conceal his theft, Woodyard, according to the article in InsuranceNewsnet.com, would make occasional "lulling" payments to beneficiaries who were supposed to receive regular annuity payments, giving them the false impression that the source of the money was an insurance company. Those payments reportedly add up to over $800,000. “The indictment alleges that Woodyard used the majority of ACE funds for his own personal financial benefit, including paying for personal living expenses, gambling habits, travel expenses, and the purchase of four vehicles, including three Mercedes Benz and one Corvette, as alleged in Counts seven through ten of the indictment.

If Woodyard is convicted on all counts, he could be sentenced to as up to 160 years in prison and $2.5 million in fines.

The Settlement Channel is a featured network of Sequence Media Group.

Posted on April 27, 2016 .