A California judge sentenced independent insurance agent Glenn Neasham to 90 days in jail late last month after he was convicted of felony theft for selling a complex annuity to elderly woman suffering from dementia, according to a report in the Wall Street Journal.

Glenn Neasham Convicted

A jury convicted Neasham in October and Judge Richard Martin sentenced him to 300 days plus probation, with all but 90 days of the sentence stayed. On March 20, Martin granted bail pending an appeal by Neasham’s. Bail was set at $20,000.

In 2008, Neasham sold a $175,000 annuity to Fran Schuber of Lucerne, Calif., who was 83 years old at the time and whose boyfriend was already a client of Neasham’s, according to court documents. The annuity, issued by Allianz, was set to mature in 15 years.

Neasham was convicted under a California law that specifically protects elderly people. Prosecutors successfully argued that Schuber had shown signs of dementia at the time she bought the annuity. The prosecution also produced witnesses who said that Neasham was aware Schuber had dementia, news reports said. Neasham denied awareness.

By the time of Neasham’s trial Schuber was suffering from advanced dementia and did not testify. Her son Theodore Schuber was named her conservator and he cashed out the annuity in January. Allianz returned the principal with interest and no penalties, the Wall Street Journal report said.

The 52-year-old Neasham said he had no idea at the time he sold Schuber the annuity ion 2008 that her mental competence was comprised. He said she seemed fine and wasn’t confused.

The Wall Street Journal Report

The report in the Wall Street Journal said the case highlights the financial authorities’ wary view of indexed annuities. These annuities pay interest tied to the performance of stock- and bond-market indexes. The insurers who sell them guarantee the purchaser won’t lose won’t lose any of their principal but the term of the annuity can be long – Schuber’s was 15 years – and steep penalties may be charged for early withdrawal. For example, if Schuber had withdrawn her funds in the first year, she would have had to pay a 12.5 percent penalty.

Moreover, agents receive steep commissions from insurers for sales of annuities. These commissions can reach 12 percent or more of the principal.

Although the conviction has been appealed and Neasham is out on bail, insurance agents told the Wall Street Journal that the case has made them more cautious in their sales of indexed annuities even while demand is strong. Extremely low interest rates and an uncertain stock market have made annuities more attractive in recent years. Sales have increased four-times in the past decade, reaching $32.2 billion in 2011.

A spokesman for the U.S. unit of Allianz told the Wall Street Journal that indexed annuities turned out to be a safe haven for investors during the financial crisis in 2008 to 2009. Annuities allowed people to hold onto principal, the spokesman said.

According to the report, Neasham said that Schuber approached him with her equally elderly boyfriend Louis Jochim, who had bought an indexed annuity from Neasham some years previous and was pleased with the investment. Jochim said that Schuber wanted an alternative to a certificate of deposit and that she was mentally competent.

When the two of them went to the bank so Schuber could withdraw the $175,000 for the purchase, the bank manager notified state officials charged with protecting senior citizens, the report said. According to court documents, the bank manager said Schuber was confused and seemed to be under Jochim’s influence.

The Lake County District Attorney’s Office contended there was enough evidence to prove that Schuber was not capable of consenting to the purchase of the annuity, and enough evidence to show that Neasham was aware of this. The deputy district attorney on the case told the Wall Street Journal that the 8 percent commission on the annuity — worth $14,000 – spoke to Neasham’s criminal intent.

Guiliano Law Group

Investors suffering losses or damages caused variable annuity switching may be able to recover damages. Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.

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