Indexed Annuities

On July 29, 2016, the Appellate Court of Illinois entered a decision reversing a circuit court decision that affirmed an administrative order of the Illinois Secretary of State (“Secretary”) finding that Richard Lee Van Dyke, a registered investment adviser with the Illinois Department of Securities (“Department”), had defrauded clients by recommending the sale of indexed annuities in violation of Illinois law.

Section 2.1 of the Illinois Securities Law of 1953 (“Act”) provides that the term “security” is defined to include a “face amount certificate.” Section 2.14 of the Act further defines a “face amount certificate” to include “any form of annuity contract (other than an annuity contract issued by a life insurance company authorized to transact business in this State)”. However, Section 12(J) of the Act prohibits fraudulent or manipulative conduct as an investment adviser regardless of whether the investment adviser sells securities. The Van Dyke case is perhaps most notable for its rejection of the circuit court’s conclusion that Van Dyke’s practices were fraudulent. Continue reading ›

An independent insurance agent, Glenn Neasham, was convicted on a felony-theft charge in March for selling a complex indexed annuity to an 83-year old client in a California court. He was sentenced to spend ninety days in jail. Prosecutors claimed that Mr. Neasham’s client had exhibited signs of dementia and was not capable of consenting to the transaction.

This case has stirred fear among insurance and securities agents. The state’s then-insurance commissioner stated in 2010, after Mr. Neasham’s arrest, that agents “who steal from vulnerable seniors will not get away with their shameful tricks.” Agents are attracted to indexed annuities because they receive high commissions, which can be 12% or more of the invested amount. As a result of this case and heightened regulatory scrutiny, agents will have to think twice before selling indexed annuities to the elderly. The $14,000, or 8%, commission that Mr. Neasham received was a factor used against him to prove his criminal intent.
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Articles Tagged with Indexed Annuities

Court Reverses Illinois Department of Securities’ Administrative Order Revoking Investment Adviser’s Registration

Insurance Agent Convicted of Selling Complex Annuity to Elderly Woman