Minnesota AG picks slow-mover as first target
Minnesota Attorney General Lori Swanson (center)
ST. PAUL -- Incoming Attorney General Lori Swanson knows that a lawsuit on behalf of ripped-off old people is a slam-dunk. So she's filed one.
Swanson last week announced legal action against Allianz Life Insurance Co. for selling complex financial products known as deferred annuities to elderly people deemed unsuitable consumers of the product. Similar actions have been launched in Massachusetts, Louisiana and Florida in recent months.
The suit alleges Allianz's agents "aggressively marketed deferred annuities to seniors without regard to the suitability of the sale and without disclosing that seniors' limited savings could be tied up for years."
Swanson alleges Allianz has netted $259,392,040 from selling more than 4,900 deferred annuities to Minnesota seniors since 2000.
Deferred annuities, which track the value of various mutual funds and stock indexes, begin paying investors a guaranteed income in future rather than straight away as with immediate-income annuities. Deferred annuities offer investors tax advantages similar to IRAs but also offer higher commissions to agents and higher fees to issuers than regular annuities. They are considered appropriate investments for people 55-65 but not for those over 70.
Nonetheless, the investments are increasingly popular, according to figures from the National Association of Variable Annuities cited in the latest Kiplinger's magazine. Sales of variable annuities, the most popular type of deferred annuities, rose from $74 billion in 1996 to $133 billion in 2005.
Last month Massachusetts brokerage Investors' Capital Corp. paid a fine of $500,000 to Secretary of State William F. Galvin for selling a type of deferred annuity called equity-indexed annuities to investors over age 75 in 2004 and 2005. Like Swanson, Galvin charged the company with selling annuities to people who were too old to benefit fully from them.
Last fall in Louisiana the National Association of Securities Dealers (NASD) fined broker-dealer Securities America $2.5 million after one of its agents persuaded 32 Exxon retirees to invest retirement payments in variable annuities and who subsequently lost money. The company also paid $13.8 million in restitution.
And the state of Florida recently arrested an insurance agent who persuaded three seniors to invest in variable annuities. In one case an 85-year-old woman lost $293,000 in seven years while the agent netted $138,000 in commissions over the same period.
The NASD lists "dishonest annuity sales practices" as one of the top-10 threats to U.S. investors.
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