Subject: File No. S7-14-08
From: Maria Pazoliotti

August 8, 2008

I support this rule. EIAs are horrible products. They are expensive and provide little benefit to the consumer. The only reason insurance agents push these products is because of the hefty commissions. These hefty commissions also spur abusive and fraudulent sales practices.

Many claim there is not evidence of abuse. However, just using a simple Google search, I found lots of evidence of abuse, which I listed below. This abuse does not seem to be isolated, but rather reflects a systemic problem with regard to indexed annuities. Note, the listing below is in addition to any complaints claimed to be recorded by the NAIC and also does not include FINRA and other dispute resolution forums.

1. In December of 2007, Minnesota Attorney General Lori Swanson sued American Equity Investment Life Insurance Co. of West Des Moines, Iowa, charging that it fraudulently marketed EIAs to senior citizens.

2. In 2008, Minnesota Attorney General, Lori Swanson, filed a lawsuit against Midland National Life Insurance Company. The lawsuit alleged unsuitable sales of long-term deferred annuities to senior citizens. Furthermore, the lawsuit alleged that Midland National violated state consumer fraud laws and failed to comply with suitability laws that require insurance companies to ensure that an annuity is suitable for each particular senior citizen.

3. California Attorney General, Bill Lockyer, and Insurance Commissioner, John Garamendi, filed a $110 million plus lawsuit against multiple companies in order to stop a scam that tricks elderly into investing in annuities that actually undermine their financial security. American Investors Life Insurance Company, Family First Advanced Estate Planning and Family First Insurance Services are some of the defendants that you will find in this lawsuit.

4. Mear v. Sun Life Assurance Co. of Canada (U.S.)/Keyport Life Insurance Company is pending in the District Court of the District of Massachusetts on behalf of persons who purchased equity indexed annuities. The amended complaint asserts RICO and various state law claims and alleges a scheme arising from the marketing and sale of equity indexed annuities to senior citizens that involved misrepresentations and/or omissions concerning withdrawal penalties, tax treatment and other policy terms.

5. Strube v. American Equity arose out of allegations that American Equity committed a variety of misrepresentations and omissions in connection with its sale of equity-indexed annuities for estate planning purposes. A Florida federal district court entered an order granting final approval of the class action settlement agreement, which afforded various forms of economic and non-economic relief to class members.

6. In Mooney v. Allianz Life Insurance Company of North America,plaintiffs allege that Allianz made misrepresentations and omissions in the sale of two-tiered equity-indexed annuities by promising an immediate or upfront bonus which could not be realized unless the annuity was annuitized over at least ten years after a fiveyear deferral period.

7. In 2006, FINRA brought an enforcement action against a representative, Cynthia M. Couyoumjian, for seminar ads and a seminar workbook that, inter alia, promoted equity indexed annuities using misleading and unbalanced statements and claims. As a result, the representative submitted a Letter of Acceptance, Waiver and Consent in which she was fined $20,000 and suspended from association with any FINRA member in any capacity for 31 days. She further consented to the entry of findings that she disseminated advertising and sales literature without prior approval from a registered principal of an FINRA member firm, and failed to file the advertising and sales literature with FINRAs Advertising Regulation Department within 10 business days of first use or publication. According to the findings, Ms. Couyoumjians sales and advertising materials oversimplified claims that omitted material information, or failed to provide a sound basis for evaluating facts, and contained exaggerated, unwarranted or misleading statements or claims.

8. In another FINRA enforcement action, Thomas John Scipione, a registered representative in Staten Island, New York, consented to the entry of findings that he submitted an equity indexed annuity application a customer executed in the state of New York, on which he falsely represented that the customer executed the application in Florida in order to circumvent the requirement that the insurance company be registered in New York to offer it products. He also made a recommendation to a public customer without having reasonable grounds for believing that the recommendation was suitable based upon the customers financial situation, investment objectives and needs. Mr. Scipione was fined $10,000 and suspended from association with any FINRA member for two years.

9. In Allianz v. Minnsota Attorney General, the suit represented 60,000 annuity investors nationwide who had purchased "bonus" annuities from December 1997 through October 2005. Investors claimed they were misled because the upfront cash bonuses promised were never received.

10. In Holding v. Cook, there was fraud in the sale of an indexed annuity.

11. In an SEC complaint filed on September 7, 2007, Mark K. Teruya and his Honolulu, Hawaii-based company, Senior Resources of Hawaii, Inc., are alleged to have defrauded seniors after offering them free meals at fancy restaurants and hotels in Hawaii. Meal/financial planning seminars were followed up with invitations to participate in one-on-one consultation to further discuss purported financial opportunities. According to the SECs complaint, Teruya, through his company, on multiple occasions induced clients to sign a series of pre-printed, fill-in-theblank forms by misrepresenting the purpose of the forms, the reasons the prospective clients signatures were needed on the forms, as well as the manner in which they would use the forms. He allegedly used the signed forms to sell the customers existing securities holdings without their knowledge or authorization and then used the proceeds of the unauthorized sales to purchase equity indexed annuities for which he received commissions totaling about $2 million. On at least one occasion, Teruya allegedly submitted to an equity indexed annuity issuer a document not signed by the customer, but instead, upon which the clients signature had been copied and pasted from another document. Teruyas misconduct allegedly commenced by 2004, continuing as recently as August of this year.

12. In 2006, the Massachusetts Securities Division signed a consent decree with Investors Capital Corp., a broker-dealer that sold indexed annuities. This enforcement action, commenced by Massachusetts securities regulators against Investors Capital in 2005, alleged widespread supervisory compliance failures that supposedly facilitated unsuitable sales of indexed annuities to Massachusetts residents, particularly seniors. The complaint alleged that many Investors Capital representatives deceptively held themselves out as being financial planners or investment specialists and induced customers to purchase indexed annuities that were not suitable for them.

13. Illinois Attorney General Lisa Madigan filed two suits on August 25, 2006, against several companies (Investors Union, American Investors Life Insurance Company, Senior Benefit Services of Kansas, Inc.) that sent allegedly deceptive mailers to seniors about indexed annuities.

There are also various other class actions going on involving indexed annuities (this list is not exhaustive):
Stephens v. American Equity Investment Life Insurance Company, et. al.
In Re: American Equity Annuity Practices and Sales Litigation
Negrette v. Allianz Life Insurance Co. Of North America
Healey v. Allianz Life insurance Co. of North America
McCormack v. American Equity Investment Life Insurance Company et at.
Cozad v. American Mutual Life Insurance Company
Bhat v. Amerus Life Insurance Company