The Wall Street Journal reported that a California insurance agent, who sold an equity indexed annuity to an 83-year old woman with dementia, has been convicted of felony theft and ordered to serve 90 days in jail. Glenn Neasham, who once enjoyed an annual income of $500,000 from selling such products, now seeks donations to pay his legal fees.
An equity indexed annuity is a complex, illiquid financial product that most experts agree is unsuitable for an 83 year old. Should the policy holder need to access her invested principal in the first few years of the policy, to meet medical expenses for instance, she would be hit with surrender charges ? 12.5% of the principal amount during the first year, according to Allianz, the issuer of the policy.
In this case, bank officials notified California’s adult-protection officials when the octogenarian, accompanied by a male friend, sought to withdraw $175,000 from her bank account to purchase the annuity. Bank officials said the woman seemed confused and influenced by the male companion.
The octogenarian was too ill to appear at the criminal trial of Mr. Neasham. The district attorney presented evidence that she was not mentally competent to consent to the transaction and that Mr. Neasham knew this at the time of sale. The district attorney also presented evidence that a $14,000 (or 8 percent) commission “played into his criminal intent.”
A conservator has since been appointed and Allianz agreed to waive the surrender charge and return the octogenarian’s principal with interest.
Sales of equity indexed annuities grew to $32.2 billion in 2011. Agents quoted in the article all agreed, however, that the criminal conviction will have a chilling effect and change their sales practices. One said that the case will be “in the back of my mind” when considering selling these products to elderly people, and “more than ever, I’d be willing to walk away from a sale.” (“Annuity Case Chills Agents,” Wall Street Journal).
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.