TUCSON (CN) – An elderly couple say a financial consultant talked them out of $585,000 to buy life insurance he promised he could flip for huge profits as part of a “Stranger-Originated Life Insurance” scam. They sued Mesa-based financial adviser Jeff P. Vogan in Pima County Court.
Lois and Charles O’Brien, 82 and 76, say Vogan targeted them because they are elderly, and persuaded them to “take advantage of their insurability” by buying two $4 million life insurance polices that could be sold to investors for as much as $200,000 in profits at the end of 2 years.
The O’Briens say that With Vogan’s assistance, co-defendants Fortris Financial of California, the First Bank of Delaware and others took advantage of them.
The O’Briens say they took out two large loans in 2007 – one for $189,000 and another for $396,000 – to pay premiums on the life insurance policies. They were told the loans were “no recourse” notes, meaning there was “no risk to them involved in the loans,” according to their complaint.
But in April this year, they say, they received notice that one of loan was in default. They seek declaratory judgment that both loans are null and void.
The O’Briens say it’s a scam, often called Stranger-Originated Life Insurance (STOLI), or Speculator-Initiated Life Insurance (SPIN). They say the arrangement is “inherently deceptive.”
“Typically, a salesman sells the policy to an unsuspecting elderly victim based on the fraudulent sales pitch that the life insurance policy will be free of cost and will present no risk or loss to the victim,” the complaint states. “The creation of such a scheme violates the legal requirement that the beneficiary of a life insurance policy must have insurable interest in the life of the insured.”
After 2 years such policies are typically sold to a third-party investor who “hopes to profit by receiving the death benefits when the senior dies,” according to the American Council of Life Insurers, an industry group that opposes the practice. “The sooner the insured dies, the higher the return to the investor group.”
The group claims STOLI are such a problem that in recent years nearly half the states have enacted legislation against the practice.
The O’Briens are represented by Brian Laird of Weeks & Laird.