California Estate Planning News

Lawsuit To Stop Scam That Targets Elderly Living Trust Mill Tricked Seniors Into Using Retirement Assets To Buy Annuities

(LOS ANGELES) – Attorney General Bill Lockyer and Insurance Commissioner John Garamendi today filed a $110 million-plus lawsuit against a living trust mill that tricked senior citizens into using their retirement investments to buy annuities that often made less financial sense for the elderly victims but earned the con artists substantial commissions and other income.
"The perpetrators of this fraud deceived seniors into using their hard-earned retirement nest eggs to buy unneeded annuities that actually undermined their financial security," said Lockyer. "Living trust mills such as this one violate not only the law, but the trust of their elderly victims. My office will move aggressively to stop these scam operations which prey on vulnerable consumers."

The lawsuit, filed in Los Angeles County Superior Court, targets the following defendants who conspired to run the living trust mill/annuity scam: Family First Advanced Estate Planning and Family First Insurance Services of Woodland Hills; Nick A. Michaels, president of Family First Advanced Estate Planning; John Owen, president of Family First Insurance Services; American Investors Life Insurance of Kansas; Group Legal Services of San Diego; Senior Law Practice Group; and attorney Thomas R. Lee of Woodland Hills.

The complaint seeks more than $40 million in civil penalties, and a combined total of at least $70 million in consumer restitution and damages. Additionally, the complaint asks the court to permanently prohibit the defendants from engaging in the alleged unlawful business practices.

The defendants' deceptive practices violated 18 separate provisions of the Business and Professions Code, Insurance Code, Civil Code and Corporate Securities Law, including several statutes designed specifically to protect seniors, the complaint alleges. The violations included unauthorized practice of law and obtaining business for an attorney by "running and capping," according to the complaint.

Family First employed between 250 and 300 sales agents, and another 80 telemarketers who operated out of a call center in Corona, California. Aside from its Woodland Hills headquarters, Family First operated regional offices in Sacramento, Fremont, Concord, Santa Ana, Irvine, Canoga Park, Rancho Santa Margarita, Santa Maria, Westlake Village, Pleasanton and Bakersfield. The defendants deceptively sold tens of thousands of living trusts and related services, and annuities worth hundreds of millions of dollars, according to the complaint.

"Defendants use the pretext of the offer and sales of ... estate planning products and services to establish confidential relationships with the consumers and find out about the consumers' assets," the complaint alleges. "Defendants then exploit those confidential relationships and use the financial information they obtain to induce those consumers to purchase annuities. Defendants make untrue or misleading statements about, and do not fully disclose the significant disadvantages of, the annuities they offer." Specifically, the complaint alleges the Family First scheme worked like this:

Through telemarketers, mailers, seminars, presentations at senior centers and other means, the defendants solicited elderly consumers, offering to come to their homes to provide free consultations about establishing or revising living trusts. They pitched their services as a way to avoid probate and reduce estate taxes.

Family First then sent sales representatives to victims' homes. Even though the representatives were not lawyers, they provided legal advice on estate planning. The representatives negotiated living trust transactions with consumers and executed sales contracts. To lend an air of legitimacy, they instructed victims to make checks payable to Group Legal Services, which kept some for itself, forwarded a set fee to Lee, and remitted the balance to Family First.

The sales representatives used these home visits to obtain personal financial information about the victims, including information about their assets. That information was used to facilitate the subsequent sale of annuities. At no time during the initial solicitation or the home visits did the defendants adequately disclose to the victims that their ultimate aim was to sell annuities.

Lee's employees prepared the living trust documents and sent them to Family First. Family First then deployed sales representatives, who were life insurance agents for American Investors, back into victims' homes. That's when victims were hit with the annuity sales pitch. The representatives told victims they should move a substantial portion of their assets to the annuities sold by the representatives. They advised victims to sell their securities and buy annuities without obtaining the required authorization from the Department of Corporations.

The sales representatives never fully informed the victims about the disadvantages of annuities, especially for elderly consumers. Those drawbacks include the fact that, during the time it takes for the annuity to mature (sometimes 15 years), consumers cannot withdraw more than specified amounts without incurring substantial financial penalties. That restriction could pose major problems for seniors facing health or other emergencies.
The lawsuit is the second brought by the Attorney General's Office against a living trust mill. Two years ago, a state appeals court affirmed a multi-million dollar judgment against Fremont Life Insurance Company, which conspired with a living trust mill called Alliance for Mature Americans. 

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