The Kosters saw the advertisement in The Villages Daily Sun newspaper that serves mostly the retirement community and surrounding area. It was a small notice, but it packed a big financial promise.
‚ÄúSeniors: Are the new CD rates too low? Learn how you can earn fixed total returns from 12 percent.‚ÄĚ
Cool! But 12 percent? Do you have to sign away your first-born? Nah, it turns out that your life savings will do.
Yvonne and Don Koster, now in their early 80s, didn‚Äôt feel quite right about the investment even after a salesman came to their Belleview home in 2003 and explained it.
The company called Fidelity Assurance Associates LLC contacted them twice more before the couple, retired from a construction business they owned, invested about $140,000. The Kosters should have stuck with their gut feeling on this one.
They figured nothing could go wrong ‚ÄĒ the brochure explained that the couple would be buying out life insurance policies from dying people who needed the money. This would be an act of compassion, it stated.
Independent doctors would examine the medical records of the supposedly terminally ill clients to make sure that they were likely to expire within four years. Investors would pay more than the policy was worth at the time but less than the payout at death. Inside that window was the profit.
What the brochure doesn‚Äôt emphasize is the sooner the person dies, the more money the investor gets. Oh, my. It‚Äôs just a bit creepy and ghoulish to bet on the death of another human being.
‚ÄúYour payout is not if, but when,‚ÄĚ the brochure cheerfully stated.
In its Frequently Asked Questions section, Fidelity‚Äôs top question: ‚ÄúIs there any chance at all that I could lose any of my money?‚ÄĚ The answer, underlined and in capital letters, ‚ÄúABSOLUTELY NONE.‚ÄĚ
The Kosters signed a contract promising a return of 42 percent on their investment in three years. The company offered up to 60 percent in four years.
Wow! Zero risk and a guaranteed 42 percent return?! Stated that way, the pitch sounds like an obvious scam. But the sales personnel made it all seem so legitimate.
‚ÄúIt sounded like a winner. But when we wanted our $100,000 back, they said it will take a year,‚ÄĚ Yvonne Koster said. ‚ÄúThen they began calling us and asking for money.
‚ÄúThat‚Äôs when we hired a lawyer.‚ÄĚ
Attorneys in this 2010 case have been litigating for eight years in a class-action suit representing about 60 people in Tampa, Orlando and The Villages. A connected lawsuit in federal court yielded about $1 million, and the Kosters have gotten about half their investment back so far.
Lawyers Janet Varnell and her partner Brian Warwick, who also is her husband, are about to wrap up the lawsuit filed in Lake County Circuit Court. The pair, whose practice is in The Villages, filed a motion asking Circuit Judge G. Richard Singeltary to rule in favor of the investors, who are seeking the return of the $3.5 million they invested.
The Lake suit alleges that Fidelity and its employees sold unregistered securities without licenses, obtained fraudulent life expectancies on those who wanted to cash in their life insurance, lied about the risks of the investment and engaged in false advertising and unfair and deceptive trade practices.
An appeals court in Atlanta ruled decades ago on what constitutes a ‚Äúsecurity‚ÄĚ that must be registered, and the definition still stands in case law. Interestingly, that suit involved William J. Howey, founder of Howey-in-the-Hills, selling orange trees and their yields, which ultimately were ruled to be securities. The lawyers say the contracts meet the definition.
Varnell said the suit against Fidelity and its associates represents only one company in only one state that deals in such insurance agreements. If the judge rules in favor of the investors, Varnell and Warwick said they hope to get all the money returned to the seniors who signed contracts.
‚ÄúMost importantly, we want for seniors in Lake County and surrounding areas to know that this is like ground zero,‚ÄĚ Varnell said of the shaky investments. ‚ÄúThey are preying on this population.‚ÄĚ
The old adage applies here: If it looks too good to be true, it is.