O.C.’s Alliance for Mature Americans Is Sued for Fraud

An Orange County firm was accused by state regulators Thursday of using high-pressure scare tactics to sell more than $200 million worth of expensive and sometimes risky retirement investments to elderly clients.

The Lake Forest-based Alliance for Mature Americans was sued for fraud by the state, which is seeking to force the company to repay money that investors have spent on annuities sold under allegedly deceptive or high-pressure circumstances.

The suit, filed in Los Angeles Superior Court, also seeks more than $3 million in damages and an injunction to force Alliance to stop using such alleged tactics.

Alliance has denied wrongdoing, saying in a prepared statement that there is “absolutely no basis for the allegations.”

The company “knows of no outstanding complaints against it,” said attorney Daphne Stegman, who has been hired to defend the company in the suit.

A spokesman for the attorney general’s office said, however, that the suit was prompted by consumer complaints. He declined to identify any consumers, saying it would violate office policy.

The American Assn. of Retired Persons’ Lakewood regional office also has received complaints and inquiries about Alliance’s sales tactics, a spokeswoman said.

Alliance markets living trusts, which can enable people to shelter their estates while they are alive and avoid expensive court proceedings involving their estates when they die.

But its agents also ask clients to agree to listen to a pitch about insurance products, according to the suit, then attempt to sell them annuities--prepaid insurance policies that pay the beneficiaries guaranteed monthly sums. The agents receive a 30% commission on living trust packages and an additional 10% commission for each annuity they sell, the suit says. Living trust packages vary in price from $1,000 to more than $2,000.

The suit alleges that the agents try to persuade clients to liquidate other investments and put all the money into annuities. The clients usually aren’t warned that they can incur early-withdrawal penalties and capital-gains tax bills by liquidating their IRAs and stock portfolios, the suit says.

Additionally, the annuities usually were described as safe investments when that was not always the case, the suit charges.

One of the insurance companies issuing Alliance annuities has gone out of business, which will result in losses of more than $11 million for Alliance customers, an attorney general’s spokesman said.

Stegman denied that losses from the collapse of the Pennsylvania-based insurance firm will be that high.

The suit alleges that in marketing living trusts, Alliance agents often gave erroneous legal advice to clients. The State Bar of California and California Department of Insurance also joined in the suit, which seeks to halt the allegedly unauthorized practice of law by the company’s representatives.

Alliance owners Stephan and Victoria Adams refused to comment. But the company issued a statement accusing the state bar and Atty. Gen. Dan Lungren of “collusion” in trying to block non-attorneys from marketing living trusts.

Stegman said she believes the suit was prompted by the state bar. “Lawyers don’t like their monopoly being challenged,” she said. “For estate planning lawyers, the money is in probate, and living trusts cut them out of probate. This is a consumer-choice issue.”

The attorney general’s spokesman scoffed at Stegman’s comments and the collusion charge.

In addition to Alliance and the Adamses, the suit names four Alliance attorneys and Fremont Life Insurance, based in Orange.

Fremont could not be reached for comment. The attorney general’s spokesman said the company is one of several that Alliance uses. It was named simply because “we know they have a close relationship,” the spokesman said. “We are investigating others as well.”

The four attorneys named in the suit are Herbert J. Rhodes Jr. of Newport Beach and Alliance staff attorneys Carolyn Gordon Sosa, Catherine Satek and Kevin J. Hopper. None could be reached for comment.

The state bar also is looking into the attorneys’ roles in any possible wrongdoing, according to bar President James E. Towery.

Towery said the bar association is involved in the suit because it believes Alliance is engaged in unauthorized legal practice. While attorneys are not required for the preparation of a living trust, such trusts often can involve complex legal matters, he said.

Senior-citizen groups have been solicited for years by law firms and investment companies marketing living trusts because older people often are concerned about preserving their estates in the event of serious illness and also are ready targets for programs that promise to maximize the value of their estates to their heirs.

Stegman said that Alliance for Mature Americans, for instance, has sold more than 20,000 living trust packages--mostly in California--since it opened for business 10 years ago.