Getting Rich from the Elderly

JOHN R. HOLLEY

Betty Lincoln (maiden name Thomas) was born in and raised in a small town in Montana. She was the only child of parents who were deeply conservative and moderately religious. Betty's parents were successful business owners, and Betty was accustomed to having everything she wanted. She took several minimum-wage jobs while in high school for spending money.

After high school, Betty attended a local college and majored in marketing. Just prior to her graduation, she attended a sorority party and met a boy named Bob Lincoln. Bob was a recent college dropout whose only dream was to be a long-haul truck driver, and he was about to begin with a big oil company's truck driver training program.

Bob and Betty started dating and a courtship soon developed. They married six months later. After having completed his training, Bob learned that there were plenty of jobs for a truck driver in Alaska. Moving north, he and Betty settled in Wasilla. Bob got a job hauling freight for the oil companies. His pay was good, but Betty soon realized she could not have the lifestyle she craved on his income alone.

Betty took a job as an insurance agent in a local agency where she specialized in handling annuities. The commission was adequate, but she saw the owner of the agency making large amounts of money from her work. Betty longed to keep that additional money and dreamed of what she would do with it. She was looking for different ways to get rich quickly, and Betty decided her best option was to open her own agency. She did research to discover which insurance products paid the highest commissions.

During this time, both of Betty's parents became ill and had to be placed in long-term-care facilities. Betty took over their finances, paying their expenses. Her parents had their money conservatively invested in the stock market and in savings. While talking to several of her parents' friends, Betty learned they had similar financial portfolios. Betty saw her opportunity.

In her research, Betty saw variable indexed annuities as her ticket to wealth. She used her marketing knowledge to develop a plan directed at the elderly. Betty held seminars at the various senior centers on financial planning, promising free food and drinks for those who attended. She bought the names of potential clients from a company on the Internet. She mailed invitations to those on her list and paid local kids to distribute flyers on cars parked at local senior centers.

Betty's seminars were packed. She began by telling those in attendance about the dangers of investing with untrustworthy stockbrokers and highlighted the recent negative media coverage of the stock markets' fiascos. Betty explained her discovery of a surefire way to make money. It had a rate of return of more than 40 percent, and the money would always be available. She was careful not to mention the word insurance or any penalties incurred for early withdrawal.

In the weeks after a seminar, Betty would meet individually with those interested in her financial plan. Prior to a meeting, Betty would find out personal information on the potential client. She would ensure that the person's favorite foods or flowers were in the conference room. On one occasion Betty noticed an individual's volunteer service with a pet shelter, so she went so far as to place a box of puppies in the corner of the room and she told the woman she was trying to find them good homes. That client signed on with Betty immediately.

Betty was successful in persuading people to liquidate their portfolios and transfer the funds to an annuity through her underwriter, Continental Annuity. She was careful not to let her clients read the paperwork they were signing and told them that they could trust her help and judgment.

Betty started by holding one or two seminars a month. Her client base grew so quickly that she needed to conduct only one seminar every three months to attract new clients. In nine months her client list went from zero to more than 300. Her newfound wealth gave her the means to obtain the things she wanted.

Betty was now able to hire an employee as well as the services of a private investigator to perform background checks on her prospective clients. She was able to better screen them and go after the ones with the highest net worth.

The Promises of the Plan

Linda Jones had just retired from a lifelong career as a teacher. Linda had the natural authority and outspokenness common to teachers, and she lived a modest lifestyle since the accidental death of her husband and daughter some years earlier. She had her retirement money in a 401k that was making modest gains. She was looking forward to retirement and was trying to stretch her dollars.

One day Linda received an invitation to a seminar on that very subject. The invitation stated that the event was free, that food and drinks would be provided and that there was no commitment required. The only requirement was an RSVP; Linda immediately signed up.

At the jam-packed seminar, Linda was mesmerized by the speaker, Betty Lincoln. Betty reminded Linda of her own late daughter. Betty seemed to be speaking directly to her when she spoke of the dangers of dealing with stockbrokers and the normal types of investing. Betty spoke of a method, which she referred to as “the plan,” that promised a return of 40 percent. This caught Lisa's attention immediately, and she wanted to learn more.

Linda contacted Betty after the seminar and arranged to meet with her privately a few days later. Before their meeting, Betty had Linda thoroughly researched and learned, in addition to Linda's favorite flowers and foods, that Linda's late daughter was of the same age and build as Betty. She was able to locate a picture of the daughter and had her hair styled to match, along with getting some identical glasses. Betty was able to tell from the private investigator's report that Linda had a rather sizable portfolio. Betty was ready for her meeting with Linda.

Linda met with Betty in Betty's office. Linda was impressed with the antique furniture in the room and the fact that some of her favorite flowers, tulips, were present in the room along with blueberry muffins. The smell of the tulips along with fragrance of the warm muffins was exquisite. Linda was astounded at the resemblance between Betty and her late daughter. Linda felt at ease and sensed that she could trust Betty's advice.

After reviewing Linda's present financial portfolio, Betty told Linda that she would be in broke in five years if she did not do something to change her future. Betty said if she changed over to “the plan,” she would be set for life financially. When Linda asked Betty about whether she would have access to the money if needed, Betty told her that she would have complete and total access at any time. Linda was sold. Betty produced a stack of documents and told Linda that if she really trusted and believed in the plan, there was no need for her to read them. Linda signed immediately.

Things went well for several months. With Betty's help, Linda was able to work out an adequate budget that met all of her day-to-day needs. Betty had arranged for a monthly withdrawal from the plan to cover those needs. Betty would call Linda weekly just to chat about things and occasionally sent her little cards. Linda was happy with her decision to go with the plan.

Then one day Linda started feeling ill so she went to her doctor. The doctor was concerned and, after some additional tests, he confirmed the worst — Linda had developed abdominal cancer. The disease had been caught early, and Linda's prognosis was good but the treatment would be expensive. Linda, though upset about the disease, knew that she could rest assured that she had the money in “the plan” to fall back on.

A Different Side of Betty Comes Out

After getting home from the doctor's office, Linda pulled out the sealed envelope containing the paperwork she had gotten from Betty. She was surprised to learn that what she thought of as “the plan” was actually an indexed variable annuity and that there was mention of a 30 percent penalty for early or additional withdrawals. Linda was able to determine that Continental Annuity was the company identified as holding her money.

Linda immediately phoned Betty about what she learned. Betty told Linda that it was a misunderstanding and hung up. Linda tried to call back but was told by the receptionist that Betty was busy. Linda even went by Betty's office several times but was unable to meet with her. Linda contacted Continental Annuity and, after finally reaching a sympathetic ear, filed a complaint about Betty. The agent at Continental assured her that they would look into it.

About this same time Bob Davis, who was a mild-mannered, recently retired carpenter, attended a seminar at his local senior center because of the promise of free food and the chance to get out of the house. He had been a recluse since the death of his wife several months before and needed the company of other people. The speaker, a young woman named Betty Lincoln, spoke of the untrustworthy practices of stock brokers, and he was very alarmed when she mentioned the name of the stock brokerage that he used.

After the seminar he arranged for a one-on-one meeting with Betty. He was surprised by the clothes she was wearing; Betty looked just like his late wife looked when she was younger. There was a box of his favorite cigars, and Betty even offered him one of his favorite beers. Betty reviewed Bob's portfolio and advised him of the lifestyle he could have after he had changed over to “the plan.” Bob was tempted but told Betty he had to think on it first. Betty tried repeatedly to persuade him to change his mind, but Bob refused to be pressured.

After the meeting, Bob went to see his stockbroker and longtime friend Bill Harris to tell him what Betty had said. Bill had never seen Bob so irate before. Bill was able to put Bob's mind at ease about the safety of his money, but over the next several days, he was contacted by no fewer than eight other clients who told him the same thing about Betty; three of them withdrew all their funds from Bill's brokerage.

Bill decided to do some investigating of his own. He managed to get an invitation to one of Betty's seminars and was appalled by what he heard. He realized that what Betty was saying was not true and that something needed to be done about her. He filed a complaint with the State Division of Securities about Betty.

The Complaints Keep Coming

I was born and raised in the Bible Belt of the deep South. Due to my strict upbringing, I developed a black-and-white view of things that has helped me during my 20-plus years in law enforcement. After a messy divorce, I moved to Alaska, where, with a new family, I have settled. I went to work as an investigator with the State Division of Insurance and have handled various types of complaints.

After intensive studying, I was able to obtain the credentials of a Certified Fraud Examiner. I have been able to apply the knowledge I learned in the successful solving of my investigations.

A complaint was filed with the division by Continental Annuity concerning their insurance agent Betty Lincoln. In the complaint, Continental alleged that Betty had been less than truthful with her clients during the presentation and sale of the product involved, variable indexed securities, and had used unauthorized sales materials. Continental advised that it had refunded the insured, Linda Jones, the funds in her entire annuity, had not paid Betty any additional commission on the sale of the product to Linda and had warned Betty that she would be dismissed if such behavior continued.

The next day I got a phone call from a friend a who was an investigator with the State Division of Securities asking if I had heard about an insurance agent named Betty Lincoln. After I told him yes, he told me about the facts concerning the complaint filed by Bill Harris concerning Betty's seminar presentation. It seemed that the date of that seminar was after the date that Betty had been warned by Continental. I told him to forward me a copy of the complaint, and I, with my director's blessing, launched an investigation into the matter.

I was able to determine that Betty Lincoln was indeed licensed to sell insurance in the state. She was not, however, licensed to sell securities or offer financial advice.

My research into variable indexed annuities revealed that they can produce a high rate of return, but they may not be suitable for everyone. This type of annuity has an average term of about 20 years, often has high penalties for unscheduled withdrawals and is based on the performance of various stock markets. According to state insurance regulations, an agent has to tell clients that they are in fact buying an insurance product. Based on this information, I set off to find out what Betty was really up to.

I interviewed Linda Jones about her dealings with Betty. It was easy for me tell that her health was failing fast. It was also easy to tell that she had become distrustful of everyone, including those who wanted to help her. Linda told me how she had received Betty's invitation in the mail and about attending the seminar. She told me how the meeting with Betty had been, about the antiques, flowers, muffins and how Betty had reminded her of her daughter. Linda told me that Betty never mentioned the word insurance or that any withdrawal penalties were involved. Linda told me that she would never trust anyone again. I felt sorry for Linda and realized how devastating Betty's actions were; they caused far more than financial damage.

I interviewed Bill Harris next, and he told me about his conversation with Bob Davis after he had attended one of Betty's seminars. Bill gave me a copy of the invitation he had received along with a copy of the materials that had been distributed at the seminar. I reviewed the materials; there was no mention of insurance or penalties associated with “the plan.” The seminar materials did describe all stockbrokers as being untrustworthy and listed the rate of return for “the plan” as 40 percent.

I interviewed Bob Davis, who told me of his dealings with Betty Lincoln and what she told him about “the plan.” Bob confessed to me that he had secretly, without Bill's knowledge, cashed in one of his stock portfolios and given the money to Betty to invest in “the plan.” When asked why, he said he trusted her because she reminded him so much of his late wife. Bob said that Betty never described “the plan” as being insurance nor did she inform him of any penalties for early withdrawal.

I requested and reviewed documentation from Continental for all policies sold by Betty Lincoln. Of those 300-plus policies, I discovered that there were only two in which the policyholders were below the age of 55. I discovered that in one instance an 85-year-old gentleman was sold a $500,000, 20-year annuity that technically locked up his money for that time period.

While I reviewed the policies, I was able to determine that the vast majority of the policyholders — 85 percent — were either widows or widowers at the time their policies were issued. I also noticed that, other than the signatures, each of the policy applications bore the same handwriting. I did a comparison to the known handwriting of Betty Lincoln, and each of the 300 applications appeared to have been completed by her. I randomly selected 15 other policyholders to interview.

I conducted those interviews and heard similar stories about how they had attended Betty's seminars and then set up private meetings with her. They all told me about how surprised they were that Betty shared their tastes in foods, flowers and hobbies. Each interviewee told me how he or she only signed on the dotted line and left the other stuff for Betty to complete. Her clients said they trusted Betty and were shocked when I told them that they had purchased an insurance product; they each told me that was not their intention and that they would not have done so if they had known. They told me they felt as if they had been violated by Betty.

I interviewed Betty Lincoln about the complaints filed against her. Betty, who was 30 minutes late for the interview, acted shocked that anyone would file a complaint. She denied any wrongdoing and of ever being warned about her behavior by Continental. Betty also denied having completed policy applications on behalf of her customers after the fact and said that she had never heard of “the plan.” I had the strong suspicion that Betty was trying to manipulate me during the interview: She cried in disbelief about the “hurtful” allegations made by people she was genuinely trying to help. When that did not work, she stopped on a dime and tried to befriend me by talking about sports. At one point she offered to get me hockey tickets. I realized she had had her private detective investigate me. When I refused her ploys, she became defensive and ceased to answer my questions.

Unwelcome Visitors

The next afternoon I received a phone call from Lindsay Mason, who claimed that she was a current employee of Betty's. Lindsay told me how she had been hired by Betty to perform the background checks and even surveillance of prospective clients. Lindsay told me that Betty would use the information to gain the clients' trust. She told me that after Betty had returned to her office from the interview with me the previous day, Betty was mad and had ordered her to destroy all the background and surveillance reports. Betty also shredded all the seminar materials in the office. Lindsay told me that she did not feel right doing so at the time. After thinking about it all night, she decided to contact me. Lindsay supplied me with copies of some of the background and surveillance reports that she had managed to keep. One of those files was that of Linda Jones.

I reviewed the findings of my investigation with Brenda Thompson, the director of the Division of Insurance. She decided to have a business audit conducted by division employees Frank McDonald and Leroy Spiegel to look into the actions of Betty and her agency. She told me to take them to Betty's office to meet her.

A few days later Frank, Leroy and I went to Betty's office, where I introduced them to her. Frank and Leroy told Betty that their exam would include random interviews of clients, employees and a review of the client files. Betty said she would cooperate, and I left Frank and Leroy to perform their duties.

During their interviews of two clients, Frank and Leroy were verbally assaulted and accused of messing up their investments. One of them threatened to kill Frank and Leroy. The Division of Insurance employees told Betty what had happened and asked her to help calm the clients down, but she refused and said she did not blame her clients for being upset. Betty told Frank and Leroy to get out of her office and not come back.

Frank and Leroy were shocked by Betty's response. Instead of reporting her actions immediately, they decided to wait to see if she calmed down. Betty did not and refused to let them continue their exam.

The Plan Fails

From my investigation, I was able to determine that Betty Lincoln had indeed violated several sections of the state insurance code. The following events happened as result of my investigation.

1. No criminal charges were filed against Betty Lincoln.
2. The Division of Insurance filed administrative charges against Betty for her behavior. Betty agreed to a voluntary permanent surrender of her insurance license.
3. Continental Annuity reimbursed all the policyholders whom Betty had taken advantage of. Continental also forced Betty to repay all the commissions she had made on those polices.
4. The Division of Securities filed an administrative action against Betty for unlicensed activity, which resulted in her being levied with a large fine. Betty did not fight the action.
5. Betty closed her business and left the state. She and her husband got a divorce.
6. Frank and Leroy suffered internal disciplinary actions for their failure to immediately report Betty's change in behavior.
7. Frank later left his employment with the division because of the way he was treated by Betty and her clients.

About the Author

John R. Holley is an investigator with the State of Alaska, Division of Insurance. In addition to being a Certified Fraud Examiner, he has more than 20 years of law enforcement experience, having successfully conducted investigations involving insurance fraud, financial elder abuse, forgery, embezzlement, theft, robbery and homicide.