Missouri recovers half a million dollars for investors in alleged annuity scheme
July 27, 2010 by Steve Rosen
By STEVE ROSEN
The Kansas City Star
The state of Missouri has recovered at least $574,000 for more than 100 investors who bought annuities from a former Overland Park insurance agent who allegedly mishandled the funds.
A cease-and-desist order was filed against James Otto, who had worked for Bankers Life and Casualty Co.
Otto provided brokerage services and investment advice for customers, many of them seniors. Most of the alleged securities sales occurred from May 2002 until August 2006, according to the state order released Monday.
During that time, Otto was not registered as a broker-dealer or investment adviser in Missouri, the order said.
Also named in the order was Michael Lees, who allegedly helped Otto in the securities sales.
Neither Otto nor Lees was available for comment.
Bankers Life issued a statement Monday: “We take these matters very seriously and actively monitor compliance with our high standards. When those standards aren’t met, we take necessary action. James Otto was contracted as an agent with Bankers Life and Casualty from 2002 until his termination in 2006.
“These issues were related to conduct specific to certain individuals in one branch office and do not reflect nor are they consistent with the sales and training practices of the company. We do not condone the depicted practices, and have taken appropriate action to reinforce the company’s training and sales policies and procedures with all our agents and employees.”
According to the order, Otto allegedly liquidated more than $7.1 million in securities investments from 180 customer accounts and moved most of those funds into fixed or equity indexed annuities sold by Bankers Life.
As part of the alleged scheme, Otto “set up new accounts for clients at discount brokerage firms, gave himself power of attorney, and transferred the investments to these brokerages.” He then liquidated the accounts and moved the investments into annuities that earned commissions for himself and co-workers, the secretary of state’s office said.
According to the order, Otto’s clients knew he was moving the money, but they “often ended up in unsuitable investments.”
About half of Otto’s clients paid the surrender charges required to get their savings out of the annuities sold by Otto or other agents that used his services, the statement said.
Missouri also filed a cease-and-desist order against Bankers Life that requires the Chicago-based company to pay investors at least $574,000, which consists of the commissions paid to the company’s agents, interest and surrender fees incurred by the investors. Bankers Life agreed to waive any future surrender fees for those who bought products through Otto.
Finally, Bankers Life will pay $214,000 to the Missouri Investor Education and Protection Fund.
Otto has 30 days to respond to the cease-and-desist order.
The Missouri Securities Division is investigating the discount brokerage firms that opened dozens of accounts for Otto’s business.
To reach Steve Rosen, call 816-234-4879 or send e-mail to srosen@kcstar.com.
