On September 14, 2016, Gary Edward Hibbing, a former insurance agent, will report to a federal prison to begin serving a sentence for actions related to the churning of annuities. The federal charges to which he pleaded guilty are wire fraud and unlawful monetary transactions, but his insurance license had been revoked earlier for, among other things, annuity replacements described as "twisting." Where the apparent sole motive for replacements is to generate agent commissions, I have used the securities industry's word "churning" instead.
The State Charges
On March 4, 2013, the Oklahoma insurance commissioner issued an order revoking the insurance licenses of Hibbing and his wife. According to the order, the respondents had sold replacement annuities to one particular senior citizen in 2007, 2008, 2009, and 2010, and to another senior citizen in 2010. The order said the respondents had provided false information not only to the senior citizens but also to the insurance companies that had issued the annuities. The order described the scheme as "a deliberate and concerted effort to receive exorbitant upfront commissions each year at the financial expense of senior citizens." The order also said the respondents had violated various Oklahoma statutes, including the prohibition against twisting.
The Federal Charges
On February 4, 2015, a U.S. Attorney in Oklahoma filed a 24-count grand jury indictment against Hibbing. It consisted of 15 counts of wire fraud, four counts of unlawful monetary transactions, and five counts of aggravated identity theft. (See U.S.A. v. Hibbing, U.S. District Court, Northern District of Oklahoma, Case No. 15-cr-29.)
Among the companies mentioned in the indictment are Allianz Life Insurance Company of North America, PHL Variable Insurance Company, Security Benefit Life Insurance Company, Aviva Life and Annuity Company of New York, Forethought Life Insurance Company, and National Western Life Insurance Company. Among the allegations in the indictment is that Hibbing had continued to engage in his scheme even after the Oklahoma insurance commissioner had suspended his license.
On April 4, 2016, Hibbing pleaded guilty to two counts of wire fraud and two counts of unlawful monetary transactions. In exchange, the government agreed to dismiss the other 20 counts in the indictment.
On August 18, 2016, the judge sentenced Hibbing to 27 months in federal prison, followed by three years of supervised release. The judge also ordered him to pay restitution of $356,000 divided among 16 clients and $129,000 to Allianz. Hibbing waived appeal and the case was closed.
The Plea Agreement
Hibbing's plea agreement includes the statement that "The sentence imposed in federal court is without parole." By signing the agreement, he expressed his understanding of that fact.
One of the attachments to the plea agreement is Hibbing's "statement of facts." Here are paragraphs 6 and 7 of the statement:
It is not often that we hear of an insurance agent going to prison for something other than felony theft. In this case, however, the churning activity was so brazen and extensive that it warranted the involvement of federal prosecutors. The extent of churning activity in the annuity market is not known, but I fear it is widespread.
Available Material
I am offering a 28-page complimentary PDF consisting of the Oklahoma insurance commissioner's order (6 pages), the federal grand jury indictment (11 pages), Hibbing's full statement of facts in his plea agreement (5 pages), and the judge's sentencing order (6 pages). Send an email to jmbelth@gmail.com and ask for the August 2016 package relating to the Hibbing case.
The State Charges
On March 4, 2013, the Oklahoma insurance commissioner issued an order revoking the insurance licenses of Hibbing and his wife. According to the order, the respondents had sold replacement annuities to one particular senior citizen in 2007, 2008, 2009, and 2010, and to another senior citizen in 2010. The order said the respondents had provided false information not only to the senior citizens but also to the insurance companies that had issued the annuities. The order described the scheme as "a deliberate and concerted effort to receive exorbitant upfront commissions each year at the financial expense of senior citizens." The order also said the respondents had violated various Oklahoma statutes, including the prohibition against twisting.
The Federal Charges
On February 4, 2015, a U.S. Attorney in Oklahoma filed a 24-count grand jury indictment against Hibbing. It consisted of 15 counts of wire fraud, four counts of unlawful monetary transactions, and five counts of aggravated identity theft. (See U.S.A. v. Hibbing, U.S. District Court, Northern District of Oklahoma, Case No. 15-cr-29.)
Among the companies mentioned in the indictment are Allianz Life Insurance Company of North America, PHL Variable Insurance Company, Security Benefit Life Insurance Company, Aviva Life and Annuity Company of New York, Forethought Life Insurance Company, and National Western Life Insurance Company. Among the allegations in the indictment is that Hibbing had continued to engage in his scheme even after the Oklahoma insurance commissioner had suspended his license.
On April 4, 2016, Hibbing pleaded guilty to two counts of wire fraud and two counts of unlawful monetary transactions. In exchange, the government agreed to dismiss the other 20 counts in the indictment.
On August 18, 2016, the judge sentenced Hibbing to 27 months in federal prison, followed by three years of supervised release. The judge also ordered him to pay restitution of $356,000 divided among 16 clients and $129,000 to Allianz. Hibbing waived appeal and the case was closed.
The Plea Agreement
Hibbing's plea agreement includes the statement that "The sentence imposed in federal court is without parole." By signing the agreement, he expressed his understanding of that fact.
One of the attachments to the plea agreement is Hibbing's "statement of facts." Here are paragraphs 6 and 7 of the statement:
6. Between October 2007 and March 2013, I formulated and executed a scheme to defraud and to obtain money and property from the insurance companies I represented and from my clients by making various material false representations to them:General Observations
7. I caused the insurance companies to send my clients the proceeds of their surrendered annuities in the form of checks. Then I caused those clients to deposit their checks into their bank accounts, as opposed to having the funds sent directly to the insurance companies issuing the new annuities. By doing so, I fraudulently masked the movement of funds among annuities from the insurance companies.
- I caused some clients to buy multiple annuities, year after year, by telling them falsely that doing so was to their financial advantage when actually it was not.
- I intentionally withheld important information from some clients about the surrender fees they would have to pay to terminate one annuity contract early and invest in the next.
- I made material false representations to the insurance companies by submitting documents that incorrectly stated my clients' reasons for terminating annuities, that my clients understood the financial costs to themselves, and that the funds being used to buy the annuities were not derived from the termination of previous annuities.
- I intentionally hid from the insurance companies the movement of clients' funds among annuity products by using different insurance companies and by fraudulently representing that some of the products were sold by my wife, who was an insurance agent, when in fact she had nothing to do with the transactions.
It is not often that we hear of an insurance agent going to prison for something other than felony theft. In this case, however, the churning activity was so brazen and extensive that it warranted the involvement of federal prosecutors. The extent of churning activity in the annuity market is not known, but I fear it is widespread.
Available Material
I am offering a 28-page complimentary PDF consisting of the Oklahoma insurance commissioner's order (6 pages), the federal grand jury indictment (11 pages), Hibbing's full statement of facts in his plea agreement (5 pages), and the judge's sentencing order (6 pages). Send an email to jmbelth@gmail.com and ask for the August 2016 package relating to the Hibbing case.
===================================
Email: jmbelth@gmail.com
Blog: www.josephmbelth.com