INFRONT
Courts Left To Clean Up IUL Sales Fraud
Scottsdale, Ariz. based IMO Shurwest faces 38 pending lawsuits in state and federal courts.
How an independent marketing organization filed for bankruptcy over the sales of hundreds of indexed universal life policies. By John Hilton
W
ith the insurance industry facing aggressive regulatory activity on several fronts, it isn’t a good time for an explosive, wide-ranging fraud involving hundreds of insurance product sales. Yet that is exactly what is happening. What began as a pension fraud scheme spread to the sales of hundreds of indexed universal life policies before being shut down by federal investigators. Then came the lawsuits, which drove Shurwest, a successful Scottsdale, Ariz., independent marketing organization, to file for Chapter 11 bankruptcy Aug. 31. Executives realized “there’s not going to be anything left,” one of the organization’s attorneys said. According to bankruptcy documents, Shurwest faces 38 pending lawsuits in state and federal courts. “We indicated to some of those outside counsel and some of the folks at 8
Shurwest that there may be a way to bring all this litigation into one forum,” said Michael McGrath of Mesch Clark Rothschild, a Tucson, Ariz., law firm handling the bankruptcy filing. “So that we don’t simply blow each other’s brains out litigating this until there’s nothing left in the cupboard.” While most of the lawsuits are from policyholders, Minnesota Life sued Shurwest on July 12. Shurwest sold Minnesota Life products as a brokerage general agent from 2012 to 2020. Minnesota Life, which also faces several lawsuits by policyholders, refunded premiums and rescinded more than 200 IUL policy sales once it discovered the fraud. Agents altered applications on more than 1,000 policies sold through Shurwest between 2014 to 2018, Minnesota Life claims in its lawsuit. A spokesman for Minnesota Life said the insurer does not comment on active litigation.
Descending Into Fraud
On Oct. 9, 2012, Shurwest was appointed as an independent general agency to sell Minnesota Life products. The relationship seemingly worked well for many years.
InsuranceNewsNet Magazine » November 2021
Courts documents put 2016 as the year things went south. That year, Melanie Jo Schulze-Miller, national sales director of life insurance for Shurwest, began incorporating an IUL sales strategy using “structured cash flows,” according to court documents. Minnesota Life had banned structured cash flows, which prosecutors say are nothing more than a pension scam. Scott Alan Kohn, 67, is behind the fraud, according to the U.S. Attorney’s Office in South Carolina. Kohn, being held in Spartanburg, S.C., faces 20 years in prison for the federal offenses. In March, a federal judge ordered a $501 million judgment against Kohn in a civil case. Kohn Kohn formed Pensions, Annuities and Settlements in 2011, which would later be known as Future Income Payments. Prosecutors say his scam was simple: using various marketing efforts, FIP and Kohn solicited pensioners by offering the ability to receive a lump sum in exchange for a portion of their future pension payments. FIP called the practice “structured cash flows” and the company used brokers and insurance producers to find invesSchulze-Miller tors, often retired veterans, teachers and firefighters. Unknown to many investors, the future pension payment terms required them to pay what often equated to an annual interest rate exceeding 100% over a fiveyear term. At some point, FIP and Kohn coordinated the scam with Schulze-Miller, court documents say. Investors were urged to fund IUL policies with their FIP payment, ostensibly to replace the pension as a retirement plan. However, prosecutors say the new layer just created another opportunity for rogue agents and FIP reps to further gouge investors through hidden and high fees.
