Court orders estate-planning company to immediately halt deceptive “trust mill” practices
Tuesday, August 28, 2018
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| State Attorney General Bob Ferguson |
CLA Estate Services, Inc. and CLA USA, Inc. made millions deceptively selling estate-planning services, annuities in a scheme targeting Washington seniors
Following a lawsuit by Attorney General Bob Ferguson, a King County Superior Court judge issued a preliminary injunction ordering an estate-planning company to immediately halt its deceptive conduct. The lawsuit asserts the Texas-based company operated a “trust mill” scheme targeting hundreds of Washington seniors.
On March 8, Ferguson filed a lawsuit against CLA Estate Services, Inc., CLA USA, Inc., and Mitchell Johnson, a former CLA agent.
The suit asserts that CLA held misleading estate-planning seminars and sold financial products to Washington seniors without adequately disclosing that these products could lock up their assets for years and carried hefty penalties for early withdrawal.
These products made CLA millions in commissions at substantial cost to consumers.
After Ferguson filed the lawsuit, CLA issued a statement claiming, “CLA customers have the peace of mind knowing that they have a valid, legal estate plan in place to handle their affairs upon incapacitation or death.”
Judge Michael Scott today granted an order for preliminary injunction, which prevents CLA from conducting estate-planning seminars and prevents both CLA and Johnson from marketing annuities to seniors who have purchased CLA’s “Lifetime Estate Plan” while the lawsuit progresses.
In order to obtain the injunction, the state had to show that its case was likely to succeed and that CLA’s deceptive conduct harms consumers.
In reality, the ultimate goal was to obtain detailed financial information to sell complex financial products seniors did not understand. The “Lifetime Estate Plan” packages included a referral to an attorney and annual review meetings, where insurance agents, under the guise of reviewing the estate plans, attempted to sell life insurance and annuities.
The annuities lock up seniors’ retirement savings, allowing them to make only nominal withdrawals during a deferral period, typically 10 years, without incurring high surrender penalties. Many seniors incurred substantial penalties for early withdrawal of funds they needed for living expenses.
CLA agents including Johnson did not adequately disclose the terms of the annuities to clients. Johnson and other agents also provided investment advice to seniors without being registered to do so.
For example, after falsely representing that he was an investment advisor, Johnson convinced a senior to transfer $600,000 held in stocks and an IRA to purchase an annuity. Johnson lied about the senior’s assets on her annuity application and failed to advise her of the surrender penalties and tax consequences she would incur if she withdrew funds early. She was ultimately charged over $37,500 in surrender penalties for withdrawals she made to pay her living expenses and help her family.
On one annuity application, a CLA agent misrepresented a couple’s assets as including a second home worth $75,000. However, the couple owned no real estate other than their mobile home and the land it was on. The agent convinced the couple to convert their retirement savings into annuities, without informing them that the annuities would cost them more in charges than they would earn in interest.
Today’s ruling prevents CLA Estate Services from holding estate-planning seminars in Washington, marketing or gathering information for estate planning documents, marketing annuities or other insurance products to CLA clients, and unfairly or deceptively marketing annuities or other insurance products to any Washington consumers. The injunction applies statewide. CLA operates in at least 35 states.
CLA can still sell annuities to individuals who are not “Lifetime Estate Plan” clients, but cannot continue their deceptive practices. They can also continue their annual review meetings with clients in Washington state, but cannot use these meetings to sell annuities or any other insurance product.
Assistant Attorneys General Trisha McArdle and Cindy Alexander are handling the case for the Attorney General’s Office.
After Ferguson filed the lawsuit, CLA issued a statement claiming, “CLA customers have the peace of mind knowing that they have a valid, legal estate plan in place to handle their affairs upon incapacitation or death.”
“CLA targeted seniors with their deceptive scheme, the opposite of giving them ‘peace of mind,’” Ferguson said. “They made millions through their trust mill scheme. This court ruling puts an immediate halt to CLA’s misleading and unlawful conduct.”
Judge Michael Scott today granted an order for preliminary injunction, which prevents CLA from conducting estate-planning seminars and prevents both CLA and Johnson from marketing annuities to seniors who have purchased CLA’s “Lifetime Estate Plan” while the lawsuit progresses.
In order to obtain the injunction, the state had to show that its case was likely to succeed and that CLA’s deceptive conduct harms consumers.
The company invited seniors to attend free workshops about estate planning. During the workshops, CLA salespeople encouraged participants to set up living trusts and buy CLA’s “Lifetime Estate Plan” packages.
In reality, the ultimate goal was to obtain detailed financial information to sell complex financial products seniors did not understand. The “Lifetime Estate Plan” packages included a referral to an attorney and annual review meetings, where insurance agents, under the guise of reviewing the estate plans, attempted to sell life insurance and annuities.
The annuities lock up seniors’ retirement savings, allowing them to make only nominal withdrawals during a deferral period, typically 10 years, without incurring high surrender penalties. Many seniors incurred substantial penalties for early withdrawal of funds they needed for living expenses.
CLA agents including Johnson did not adequately disclose the terms of the annuities to clients. Johnson and other agents also provided investment advice to seniors without being registered to do so.
For example, after falsely representing that he was an investment advisor, Johnson convinced a senior to transfer $600,000 held in stocks and an IRA to purchase an annuity. Johnson lied about the senior’s assets on her annuity application and failed to advise her of the surrender penalties and tax consequences she would incur if she withdrew funds early. She was ultimately charged over $37,500 in surrender penalties for withdrawals she made to pay her living expenses and help her family.
On one annuity application, a CLA agent misrepresented a couple’s assets as including a second home worth $75,000. However, the couple owned no real estate other than their mobile home and the land it was on. The agent convinced the couple to convert their retirement savings into annuities, without informing them that the annuities would cost them more in charges than they would earn in interest.
Today’s ruling prevents CLA Estate Services from holding estate-planning seminars in Washington, marketing or gathering information for estate planning documents, marketing annuities or other insurance products to CLA clients, and unfairly or deceptively marketing annuities or other insurance products to any Washington consumers. The injunction applies statewide. CLA operates in at least 35 states.
CLA can still sell annuities to individuals who are not “Lifetime Estate Plan” clients, but cannot continue their deceptive practices. They can also continue their annual review meetings with clients in Washington state, but cannot use these meetings to sell annuities or any other insurance product.
Assistant Attorneys General Trisha McArdle and Cindy Alexander are handling the case for the Attorney General’s Office.
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