‘Churn’ Artists Favor Seniors -- as Victims

Cecil A. Hyatt, 80, met David Alfred Tetley in 1988 at a financial planning seminar for retirees from Lockheed Martin, according to Hyatt’s daughter.

Over the years, Hyatt, who now suffers from dementia, bought a number of annuities from Tetley. Authorities say Hyatt never knew that each time he cashed out one policy to buy another he lost thousands of dollars in penalties.

“I trusted the man,” Hyatt said. “He had a good personality.... He made you feel like you just got out of church.... I’m very hurt and very disappointed.”

The Camarillo man and 10 others were victims of an insurance scam called “churning” or “twisting,” said prosecutors and state insurance investigators. In all, Tetley cost these investors more than $750,000 in early withdrawal penalties alone, authorities said.

Los Angeles County Superior Court Judge Michael M. Johnson sentenced Tetley, 50, to six years in prison Tuesday and ordered him to pay full restitution to his victims. Tetley is one of the first financial planners ever charged with felonies for such actions, according to prosecutors and his defense lawyer.

“The brokers had better look carefully at what happened here because this is the first time the district attorney has taken on churning as a felony,” said David Daar, Tetley’s criminal defense lawyer. “This is the warning of the state to brokers. It has to be heard.”

Churning is a misdemeanor under state law, punishable by up to one year in county jail and a $1,000 fine. But prosecutors alleged that Tetley’s practices resulted in the much more serious crimes of financial elder abuse and grand theft. He profited every time a client sold one annuity to buy another, Deputy Dist. Atty. Alexis de la Garza said.

Tetley pleaded guilty to six of the 38 criminal counts. He was accused of churning 95 policies for 11 victims over a six-year period, De la Garza said.

Of the prison sentence, Hyatt said it’s not long enough. “I think that’s where he belongs -- for the rest of his life,” he said.

California Insurance Commissioner John Garamendi investigated the case and referred it to Dist. Atty. Steve Cooley for prosecution.

“This is an extremely important case because we are going to put a stop, if we possibly can, to what is financial senior abuse here in the state of California,” Garamendi said.

“All too often, seniors who are looking to enjoy their retirement years are finding that unscrupulous insurance agents and brokers are using a technique of churning or twisting as a mechanism of taking away their life savings,” he said.

Garamendi said senior citizens often meet the unscrupulous financial planner in free seminars that advertise ways to increase their resources after retirement.

“What they will do is go up to the seniors and say, ‘I know you’ve got an annuity, but I’ve got a better one. It’s going to offer you 5% more. All you need to do is get rid of that old annuity, take this new one and you’re going to make out wonderfully,’ ” he said.

But the broker does not tell his new clients that the new annuity will not mature for 10 or even 20 years, leaving them without easy access to their money unless they withdraw it early and pay fees of up to 20% of the policy’s value, Garamendi said.

Meanwhile, the broker gets a substantial commission each time he sells an annuity.

Tetley bought and sold annuities belonging to Robert Wright, 82, a retired brick mason, and his wife, Ruby, 19 times over five years, costing them $172,000 in combined losses, said Linda M. James-Harris, their new financial planner.

“They had boxes of paperwork, but they had no idea where their money was,” she said.

Since the criminal investigation was initiated in September 2002, James-Harris said, insurance companies have reimbursed her clients for almost all of their losses.

Garamendi said he wants to change the law to make those practices punishable by prison time. He also suggested adding a 10-cent fee to each life insurance policy written in California to finance the investigation and prosecution of such scams and to educate senior citizens.

In the Tetley case, prosecutors said the defendant also forged documents and misled clients. He would send them “annual reports indicating that their money was actually increasing in value when in fact ... the individuals were losing money; sometimes the loss was as much as 20%,” De la Garza said.

Carol Randall, 68, of Malibu didn’t know how much she had lost in Tetley’s scheme until she was contacted by state investigators. “I try not to think about it,” she said.

Randall met Tetley in 1995 in a seminar at her workplace.

“My policies were not worth what he had told me,” Randall said. “He was anxious for me to retire to help my husband, but what he really wanted was my 401(k) account.”

Randall said she and her now-deceased husband, a house painter, also were told that “we would not be penalized in any way [for switching annuities], that it would all be made up just as soon as it was moved to the next company.”

Bonnie Burns, director of consumer education with California Health Advocates, a nonprofit that informs Medicare beneficiaries on health insurance, said meeting a financial planner through the workplace “gives the illusion of trust.”

Burns said financial planning is highly complex and older people fret over how best to invest their life’s savings. “An elderly person’s worst fear is that they are going to run out of money before they die,” she said.

She said she always advises elderly clients to have another person there during presentations by financial planners and to never commit at the first meeting.

Garamendi had words of warning this week for crooked brokers and their targets.

“The first message is to those agents and brokers out there who are regulated by the California Department of Insurance: You do this and I’ll find you. And you’re going to spend six years’ free room and board in one of the finest prisons in California, and you are going to be forced to pay back your money.

“And the second message is to seniors out there: Beware. You do not have to buy a new policy. You must consult your family, if you have a family, [or] consult a financial advisor. Take time. Don’t be pushed around. Don’t be sold something that you don’t need. All too often, if it sounds too good to believe, it’s not believable.”