Insurance Agent Convicted and Faces Jail for Selling Complex Annuity to 83 Year Old Women Suffering from Dementia

Action Sends Chills to Industry, as Well It Should

With the growing number of elderly in the United States the big, the really,  really  big industry these days is scamming the old folks.  Some of it is done by outright fraud, but some of it is done by selling people legal products, but products the person has no business purchasing.

Index based annuities are complex investments where the payout varies with the performance of the stock markets.  They may well be a good product for some investors, primarily younger people who have the time to wait for long term market growth.  But the products carry huge commissions for the agents, and huge penalties for early withdrawal, meaning they are just not suitable for an older person.  They are definitely not suitable for an 83 year old woman.

But in California an insurance agent did sell an indexed annuity to an 83 year old woman.  And if anyone wonders what the reason was he had for doing so, well here it is, to the surprise of no one.

Lake County Senior Deputy District Attorney Rachel Abelson said in a court filing there was "sufficient evidence presented [at trial] to show that Fran Schuber was not capable of consenting to the transaction in question and evidence showed that [Mr. Neasham] knew that at the time." In an interview, Ms. Abelson said a $14,000, or 8%, commission "played into his criminal intent."

But to the surprise of at least one person, namely The Dismal Political Economist this is what happened next.

Last month, Glenn Neasham, an independent insurance agent, was ordered to spend 90 days in jail on a felony-theft conviction for selling a complex annuity to an 83-year-old woman who prosecutors alleged had shown signs of dementia.

This happened because of an alert and caring banker (just when everyone had given up on them) and a serious prosecutor.

The criminal case, under a state law specifically protecting elderly people, is rooted in what happened next: Ms. Schuber and Mr. Jochim went to a local bank to withdraw $175,000 for the purchase. A bank manager then notified California's adult-protection officials, saying the woman seemed confused and influenced by Mr. Jochim, court filings show.

And not only was that a great outcome, but the verdict and possible jail time for Mr. Neasham is having a great effect on the sales of indexed annuities.

Some agents said the Neasham case is compelling them to scale back sales of indexed annuities even as demand is cresting. Historically low interest rates and a volatile stock market have helped draw buyers. Sales have more than quadrupled in the past decade, swelling to $32.2 billion in 2011, according to Limra.

"The case will definitely have a chilling effect," said Larry Rybka, chief executive of ValMark Securities Inc. in Akron, Ohio, which includes an insurance brokerage. Mr. Rybka fired off a memo last month on the case to his firm's internal compliance and marketing teams, reinforcing instructions to make sure brokers warn prospective buyers of the withdrawal penalties and other features. The firm for years has discouraged agents from selling certain indexed annuities. Now Mr. Rybka wants them to sell even fewer.

As for the victim, things have turned out okay

By last year's trial, Ms. Schuber was too ill to testify. The annuity was cashed out in January by Ms. Schuber's son, Theodore, who was named her conservator last September, said his attorney, Mary Heare Amodio. Allianz returned the principal with interest and no penalties, Ms. Amodio and the insurer said.

And for Mr. Neasham, not so okay

As his April 18 reporting date to Lake County Hill Road Jail approaches, Mr. Neasham said he has had "really bad dreams" about going behind bars. Once earning $500,000 annually, he now seeks donations for legal fees.

But that’s okay.