News: 2007 Press Release

SACRAMENTO - Insurance Commissioner Steve Poizner and Attorney General Jerry Brown announced today a joint $7.2 million settlement involving the alleged misleading of seniors into purchasing unsuitable annuities.

"I refuse to tolerate insurance fraud in California," said Commissioner Poizner. "Targeting our state's vulnerable seniors to make an extra buck is especially egregious. Today's settlement is a victory for seniors and all California consumers. I applaud the hard work of my Department investigators and Attorney General Jerry Brown for his commitment to upholding the law and protecting Californians."

Although no party to this lawsuit has admitted to any wrongdoing, Family First Advanced Estate Planning and Family First Insurance Services of Woodland Hills; John Owen, president of Family First Insurance Services; and American Investors Life Insurance of Kansas will pay to the Department of Insurance (CDI), the California Department of Justice and impacted customers a combined total of $7.2 million as a result of the settlement. Highlights of the settlement include:

• American Investors Life Insurance Company will pay $5,500,000 to the Office of the Attorney General which will be distributed to California consumers who purchased American Investor annuities through Family First Insurance Services and had incurred surrender charges.
• Family First Insurance Services, Family First Advanced Estate Planning, and John Owen shall pay a total of $250,000 to the Office of the Attorney General as a civil penalty.
• Family First Insurance Services and Family First Advanced Estate Planning will pay an additional civil penalty of $750,000 to the Office of the Attorney General.
• American Investors, Family First Insurance Services, and Family First Advanced Estate Planning will pay $500,000 to the Department of Insurance and $200,000 to the Office of the Attorney General as a reimbursement of their investigative and prosecution costs.
• American Investors Life Insurance Company will provide a "hardship waiver" to annuity owners who bought annuities through Family First Insurance Services or its agents. In situations where the withdrawals would otherwise result in being assessed surrender charges, annuity owners will be permitted to withdraw money from their annuities without incurring surrender charges if the owners can demonstrate that they have suffered a hardship and are unable to pay the costs resulting from the hardship.
• People who have not already received a future credit of 55% or more of their surrender charges will be allowed a one time offer of receiving the value of their annuities in monthly payments along with a bonus of 1% to 1.25%.

The Complaint alleged that the named companies deceived victims into purchasing thousands of living trusts and related services, and misled them into buying annuities worth hundreds of millions of dollars. These companies deceived their victims through a complex business plan that employed a multiple step process. First, representatives visited seniors under the guise of offering estate planning services. In reality, the companies were using the meetings to gather information about the seniors' finances and gain their trust and confidence. When life agents would later deliver the estate planning documents, they then used the financial information that had been submitted for the estate planning documents to pitch annuities.

Life agents would allegedly tell the seniors that their existing investments were inadequate, then induce the seniors to close out their existing investments and purchase new annuity policies. The seniors would often do so, believing that the life agent had expertise in estate planning and was acting in their best interests. Investigators assert that the life agents pursued seniors, despite the potentially adverse impact that the purchasing of these annuities had on the seniors' financial situations. It was also alleged that life agents did not disclose the drawbacks of the products they sold.

"These companies tricked senior citizens into buying annuities that would not pay out for years and had substantial early withdrawal fees - investments that made no sense for elderly people," Attorney General Brown said. "California took action against these companies and today's settlement marks the end of their unlawful practices," Brown added.

Commissioner Poizner also issued an Accusation against Family First Insurance Services and John Owen on November 1, 2007. Although Owen denied the material allegations and wrongdoing alleged in the Accusation, he stipulated that his life agent license will be restricted for 5 years. Family First Insurance Services has also denied all material allegations set forth in the Accusation, but has agreed to the revocation of its license.

Consumers who have been victimized by annuity fraud should report it to the Department of Insurance by calling 1-800-927-HELP, or visiting the web site at www.insurance.ca.gov. They also may file a complaint online at the Attorney General's web site, http://www.ag.ca.gov/consumers/mailform.htm.

The judgment is attached.