Arizona IMO seeks bankruptcy protection against IUL fraud fight

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A prolific pension fraud program that spread to the insurance industry before being shut down by federal investigators continues to generate new lawsuits.

And it continues to claim new victims as well – the latest being Shurwest, a successful independent marketing organization in Scottsdale, Arizona. Shurwest filed for Chapter 11 bankruptcy on Aug. 31 after executives realized “there would be nothing left,” one of its lawyers said.

According to bankruptcy documents, Shurwest faces 38 pending lawsuits in state and federal courts.

“We indicated to some of these outside lawyers and to some people at Shurwest that there might be a way to bring all of this litigation into one forum,” said Michael McGrath of Mesch Clark Rothschild, a law firm of Tuscon, Arizona. filing for bankruptcy. “So we don’t just blew our brains out arguing this until there was nothing left in the closet.”

Most of the plaintiffs are nationally injured policyholders who fell victim to a pension settlement fraud scheme that was adapted to the sale of hundreds of indexed universal life insurance policies. ULI is one of the most popular life insurance products in the industry.

But a trial is not like any other.

Minnesota Life sued Shurwest on July 12 in the U.S. District Court for the District of Minnesota. Minnesota Life, which also faces several lawsuits from policyholders, has refunded premiums and canceled more than 200 sales of IUL policies after discovering the fraud.

Agents changed claims for more than 1,000 policies sold through Shurwest between 2014 and 2018, according to Minnesota Life in its lawsuit.

Shurwest quietly renamed itself The Quantum Group in 2019, according to the Minnesota Life lawsuit, and the insurer wants the new company to be held accountable for its losses.

A spokesperson for Minnesota Life said the insurer is not commenting on pending litigation.

The scheme

Scott Alan Kohn, 67, remains at the Spartanburg County Detention Center in Spartanburg, South Carolina, where he has been held since November 2019. His trial on federal conspiracy charges for mail and electronic fraud has been delayed by the COVID-19 pandemic.

Kohn faces 20 years in prison for federal offenses. In March, a federal judge ordered a $ 501 million judgment against Kohn in a civil case. Kohn is no stranger to prison, having pleaded guilty in 2006 to the felony charges of trafficking in counterfeit goods. He served a 15-month sentence in federal prison.

Kohn created Pensions, Annuities and Settlements in 2011, which would later be known as Future Income Payments. The South Carolina U.S. Attorney’s Office said the FIP was just a pension theft that turned into a Ponzi scheme. Kohn lived well for a while outside of the program, at one point owning a $ 4.8 million beachfront home in California.

Prosecutors say his scam was straightforward: Using various marketing efforts, FIP and Kohn solicited retirees by offering them the option of receiving a lump sum in exchange for a portion of their future pension payments. FIP called the practice “structured cash flow” and the company used brokers and insurance producers to find investors – often retired veterans, teachers and firefighters.

Unknown to many investors, future pension payment terms required them to pay what often amounted to an annual interest rate greater than 100% over a five-year term.

At one point, FIP and Kohn added another layer to the scam, prosecutors said. Investors have been urged to fund IUL policies with their FIP payment, apparently to replace pension as a retirement plan. However, prosecutors said the new layer just created another opportunity for dishonest agents and FIP officials to further deceive investors with hidden and high fees.

Melanie Jo Schulze-Miller worked for Shurwest from June 2012 to May 2018, according to court documents. At one point, she was appointed national director of life insurance sales for the company. She also knew Kohn and began incorporating his “structured income payments” program into her sales strategies, according to court documents.

Big commissions

According to court documents, Schulze-Miller earned more than $ 1.2 million in commissions directing business to FIP. She cooperated with investigators and pleaded guilty in December to conspiracy to defraud. Schulze-Miller agreed to forgo nearly $ 180,000 and one vehicle, a 2017 Infiniti, as part of his plea deal.

The question for the courts is whether Shurwest was aware of Schulze-Miller’s activities and, even if they did not, whether they are still responsible. What is known is that Schulze-Miller started his own company called MJSM Financial, which handled numerous fraudulent sales, according to court documents.

Shurwest argues that Schulze-Miller became a thug and committed fraud on her own. At least one judge accepted this argument in a July 2020 ruling.

U.S. District Judge Susan R. Bolton sided with Shurwest in a lawsuit brought by its insurer, Landmark American Insurance. Landmark has not shown that Shurwest was involved in driving Schulze-Miller, the judge ruled, or that he knew he would face legal action before purchasing his policy.

A federal judge in Minneapolis will face a similar liability action brought by Minnesota Life.

“Cleaned” applications

On October 9, 2012, Shurwest was appointed as an independent general agency to sell Minnesota Life products. The relationship has apparently worked well for many years. Court documents place 2016 as the year when things went wrong. Shurwest agents reportedly began promoting FIP strategies that year, under the leadership of Schultze-Miller, according to court documents.

Among its allegations, Minnesota Life alleges that agents affiliated with Schulze-Miller and Shurwest “searched” the IUL applications and modified them to overstate the applicants’ income and net worth, while masking the agreement from “flow”. structured cash flow ”.

Minnesota Life says policy claims changed on more than 1,000 policies sold through Shurwest between 2014 and 2018. The insurer said 222 of those policies were related to an investment in FIP.

“No one at Shurwest has conducted a more in-depth review of the claims after potential policyholders submitted their claims to Ms. Schulze-Miller and her team,” the lawsuit said. “The claims were submitted directly by Ms. Schulze-Miller and her team to Minnesota Life without any further assessment or oversight from Shurwest.”

But Shurwest lawyers say their client cannot be held responsible for something they knew nothing about.

“Minnesota Life looked at us and said, ‘If we’re responsible, then you’ve got to be responsible,’” attorney Michael McGrath said. “But I think at least the Minnesota life attorneys we deal with understand that, like them, we too are a victim. We had a dishonest employee who started a business we knew nothing about. “

The scheme collapses

According to its lawsuit, Minnesota Life began receiving complaints from insureds in early 2018. After finding out about the FIP funding program, the insurer offered to cancel all of those policies and refund the premiums. A total of 210 IUL policies had been canceled when the complaint was filed, Minnesota Life said.

Minnesota Life prohibits the use of structured cash flow to fund premiums on life insurance policies because the insurer loses money on each sale of an IUL policy that results in early lapses, Minnesota Life explained in the trial.

“The financial underwriting guidelines are designed to prevent the sale of policies that are not affordable or that are excessive in terms of needs and goals,” the lawsuit said. “If the IUL policy applications submitted through Shurwest had honestly disclosed the source of funds for the premium payment, Minnesota Life would not have issued the policies. “

As the schedule turned to 2019, Shurwest and Minnesota Life both took action. Shurwest began to market itself as the Quantum Group. The two companies appear to share the same address, phone number and employees, Minnesota Life noted in the lawsuit.

The senior executive of The Quantum Group, Jim Maschek, partner and president of distribution, also signed the bankruptcy documents of Shurwest as its representative. Maschek ran for president of Shurwest. He referred a reporter to McGrath and Mesch Clark Rothschild.

Deal concluded

According to the Better Business Bureau, Shurwest was incorporated in 1993. Mark West has been president and Ronald Shurts has been vice-president. Shurts signed bankruptcy documents as IMO general partner. Neither man is listed as a Quantum Group executive on his website.

In March 2019, Shurts and Minnesota Life struck a deal for Shurts to pay Minnesota Life $ 200,000 up front, then $ 50,000 a month, then $ 75,000 a month, the insurer said in its action in justice. The money was intended to reimburse Minnesota Life for commissions paid on canceled sales.

“This deal was ongoing, and I don’t know if the payments stopped in July or if they stopped in August, but they cannot continue now that we are bankrupt,” said Isaac Rothschild of Mesch Clark Rothschild. .

According to bankruptcy documents, Shurwest lists Minnesota Life as a creditor owing $ 2.15 million. This is the amount Minnesota Life claims to be owed to him in commissions he paid for fraudulent IUL sales, McGrath said.

In June 2020, Minnesota Life terminated Shurwest’s general brokerage agency contract.

Meanwhile, the courts in South Carolina continue to try to unravel the FIP fraud. Greenville, SC attorney Beattie Ashmore has been appointed by a judge to try to recover money that investors have lost. He has filed nearly 90 lawsuits for around $ 30 million with financial advisers and insurance agents across the country, the Greenville News reported in December.

Ashmore has not returned a call or email for an update on these efforts.

“We understand that there are casualties out there,” McGrath said. “And these are the people we want to direct to the South Carolina FIP receivership case because they have indeed been wronged.”

InsuranceNewsNet editor-in-chief John Hilton has covered business and other events in more than 20 years of daily journalism. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.

All 2021 content Copyright © InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the written consent of InsuranceNewsNet.com.



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