After more than four months in jail, Alan S. Lewis’ first taste of freedom was an In-N-Out Burger.
“Once you’ve had one, it’s just something special,” Lewis said. “While I was in jail, that was exactly what I wanted – an In-N-Out Double-Double Animal Style with an order of fries. So, that’s what I did.”
Lewis was appreciating the simple pleasures of life the day after he was released from custody in a Southern California jail on July 10. He was still reeling from months of living in a primitive, dangerous jail as he faced 29 felony charges for incurring surrender charges while selling annuities.
It was not just the number of felonies that baffled him, but also the charges themselves: embezzlement, grand theft and burglary. The first two charges derived from 12 clients who incurred surrender charges when they canceled their annuities to buy new fixed index annuities. The burglary charge was because Lewis visited clients’ homes during the sales process. Although Lewis did not enrich himself beyond the commission he earned, the prosecutor said the $300,000 in surrender charges amounted to theft.
This was the key point that made some in the fixed index annuity business anxious. If Lewis were convicted, then any deal that involved a client incurring a surrender charge or early cancellation penalty to buy a new product could lead to charges of embezzlement, grand theft and burglary. It would effectively criminalize surrender charges, which insurance companies rely on to dependably invest the premiums long term in order to cover the guarantees.
Kim O’Brien, president and chief executive officer of the National Association of Fixed Annuities (NAFA), said not only are agents at the risk of prison for selling annuities, but the public is at risk of being deprived of products designed to protect retirement.
“A determination by the court that selling an annuity with a surrender charge is tantamount to embezzlement or common theft – and if the sale occurs at the client’s home, with burglary – would have a chilling effect on the ability of consumers to have access to fixed annuities,” O’Brien said in a statement from the association of fixed index annuity companies.
Meanwhile, as Lewis adapted to the rough, random justice meted out by gangs in jail, his case wound slowly through a court system that seemed just as capricious and far more punitive. If convicted, he could move on up to a state prison for the next 40 years.
Snatched From his Life
Lewis was hurtling from one crisis when a traffic stop opened the gate to the next.
His arrest was the latest setback in years of difficulty since the economy soured in 2009. Since then, Lewis had left the annuity business and Southern California for Tennessee. He later sank into a deep clinical depression that led to living on the streets of Nashville for a year. He and his wife split up, and Lewis moved to Houston. Eventually his 18-year-old son moved there with him and fell deeper into a Xanax addiction. Lewis was speeding to an Al-Anon meeting when he was pulled over. (For more background on the case, read Ex-Agent Faced With Burglary Charges for Selling Annuities.)
Instead of getting a ticket, Lewis was jailed on an outstanding California warrant. Lewis languished for 10 days in a Texas facility awaiting extradition to California, not even knowing what the charges were or why he was being accused of anything.
Lewis finally faced his three dozen felony charges when he was arraigned. That was when he learned his alleged “embezzlement” occurred when he was an agent, but not a principal, with Family First Insurance Services, an agency that would eventually be sued by the state and put out of business for predatory practices. The initial 36 felony charges were reduced to 29 felonies and a misdemeanor. No one else from the agency has been charged criminally.
While Lewis was going through a five-day preliminary hearing, he learned that during the state’s Family First probe an investigator had heard that a client of Lewis’ had dumped his Allianz annuities to buy annuities from another company. Lewis later said that did happen but the client wanted the switch even though Lewis warned him about the surrender charges.
“He called me, and he said, ‘I want you to do something with these Allianz annuities. I’m not happy with them,’” Lewis said. “I said, ‘Man, you’ve not had them that long. You’re going to take a bath on those surrenders.’ He said, ‘It doesn’t matter, I’m going to do it anyway,’ and he did it himself.”
That instance led the investigator to find others who had incurred surrender charges for giving up their annuities for a new annuity. Lewis was sure after the preliminary hearing that the state did not have a case. Later hearings confirmed his suspicions.
The prosecutor, Sheronda Edwards, had dumped piles of documents onto Lewis’ court-appointed lawyer, A.C. Jones, on June 23. Not only did the prosecutor ask for more time to prepare, but Lewis’ own lawyer asked him to waive his right to a speedy trial so he could investigate the documents. Lewis said he would think about it. He went back to jail and saw all the people who had waived their rights and have been waiting for their trials, sometimes for years. Lewis thought long and hard before deciding what to do.
He returned to court on June 26 and told his lawyer “There was nothing here five years ago; there was nothing here last week; there’s nothing here today; there won’t be anything here five years from now.” Lewis said, “I’m not waiving my right. We’re going to trial.”
Then his lawyer told him that the prosecutor offered a deal for time served if he would plead guilty to a couple of the charges. “I said, ‘Well, what would you do?’ He said, ‘Man, I’d take the deal.’”
Lewis gave his lawyer an answer and they went into the courtroom. Lewis sat secured in what he called his Charlie Manson chains in the prisoners’ section.
“Your honor,” Jones said, “My client wants to go to trial.”
Later in a holding cell, another inmate confided in Lewis. “Did you see what she did?” the inmate asked in reference to the prosecutor. “She wobbled.”
Days later, the prosecutor agreed to a hearing to dismiss the charges.
The State Prosecution Fund
The prosecutor had amassed more than 10,000 pages of documents in the case and dozens of hours of interviews. She was able to do this in part because of a California program designed to help county district attorneys prosecute life insurance and annuity agents. The state’s Life & Annuity Consumer Protection Program collects $1 for every insurance transaction to finance consumer awareness material and county prosecutions.
The state collects an average of $871,000 annually but expects to collect more than $1 million a year because of recently enacted changes to the law. Those legislative amendments also made the program permanent rather than its having to be reapproved periodically.
Riverside County, where Lewis was prosecuted, had asked the state to finance its prosecution of a complex case that appears to be the Lewis case. The case details were blacked out before the document was released to InsuranceNewsNet. Altogether, the county has received $371,000 from the fund since 2006.
Half of the state fund finances prosecution. The other half underwrites outreach material such as videos and pamphlets to teach senior citizens about life insurance and annuity scams. In Riverside County’s case, district attorney staff members and state Insurance Department investigators team up to present programs for seniors, warning them of unscrupulous annuity agents.
Riverside authorities showed a video warning of complex annuities and the insidious ways they are sold. It features a dramatization that begins in a lunch or dinner seminar where the clearly dastardly agent is fishing for “victims.”
Much like the meal seminars the video warns about, counties and the state use these seminars to find “victims.” In Riverside County’s 2012 funding request, county Chief Deputy District Attorney Vicki Hightower wrote:
As we do at all outreach sessions with audio/video capability, we were able to show the Annuities – It’s Your Choice video provided to us by CDI [California Department of Insurance] … Through our continued outreach efforts with the Department of Insurance and other agencies, we anticipate additional investigations will be referred to our program during the next fiscal year.
That, in essence, erases the statute of limitations on prosecution, said Brad Carr, who used to work as an annuity agent with Lewis at Family First. Carr said he is concerned because in California, the three-year statute of limitations clock starts when authorities become aware of a complaint, not when the incident occurred.
“I know my sales were legal and ethical,” Carr said. “But what happens if someone who was in perfect health when they purchased an annuity but now suffers from dementia goes to one of those seminars and says, ‘I didn’t know what I was buying’ five, 10 or 20 years after the sale?”
Even if an investigation or prosecution were eventually dropped, an agent’s life and livelihood would be permanently damaged. Lewis was subjected to more than four months of imprisonment with the threat of 40 more years hanging over his head.
In the case of an annuity agent in Northern California, a flimsy case based on whether a client had dementia went all the way to the state Supreme Court before it was judged to be wholly without merit. In the meantime, Glenn Neasham lost his insurance license, business and house. He and his family had to subsist on food stamps. Neasham was convicted, but appellate judges threw out the judgment and expunged the original opinion from the record so that it could not serve as a precedent.
Even though the case was discredited, it still serves as a model for district attorneys. In Lake County, where Neasham was prosecuted, an assistant district attorney said the office is talking to other counties and agencies about the case. In a year-end report for the state’s consumer protection program in 2012, the prosecutor wrote, “Throughout the year, the grant prosecutor and investigator spoke to various law enforcement agencies regarding the Neasham case.”
The days after Lewis was released, he stayed with a friend’s family in Southern California and enjoyed the simple pleasures of being free to go where he wanted. Sitting outside and enjoying an exquisite California summer evening, Lewis took a few moments to reflect on what happened to him and what to do next.
He was planning how he could get back in touch with his troubled son, who has been shielded by Lewis’ wary ex-wife. He was considering the bud of a life he had been growing in Texas before he was whisked away. But that night, he was also thinking about simply being free and how tenuous freedom is.
“I’ve been abused in a very powerless position by a government that I thought was moral and just, and I found an environment where it is the exact opposite,” Lewis said. “This is a life changer. This isn’t getting pulled over for a DUI in jail for three nights or whatever. I spent 51 years building a reputation of character and honesty. Where do I go to get that back?”