Not long after her husband of 58 and a half years died, Florence Carlson was getting her hair done at Becky's Hair on 2nd in northeast Minneapolis, when the talk turned to money. She told the regulars, a close-knit group in their 70s and 80s, that she'd like to have all of her money in one place. Carlson's friend Irene piped up.
"I have one of the best," Irene said of her estate planner. "We called the Better Business Bureau, and they had a clean slate."
The company, American Family Legal Plan, was absolutely wonderful, the ladies said. So Carlson called them up.
A sales agent promptly arrived at Carlson's home in Northeast. Carlson's eyesight was poor, so she couldn't read the brochures the agent had brought along. "Just don't leave anything out," Carlson said.
The agent explained that Carlson's money, which was in an Individual Retirement Account with Prudential that paid her $100 per month, would be much better off at American Family Legal Plan. In fact, if Carlson didn't buy a living trust with American Family before she died, the costs of estate taxes and probate fees could suck thousands of dollars from her savings before the money ever reached her children.
So Carlson purchased a living trust for $1,995.
A few weeks later, an agent from a company called Heritage Marketing came to notarize the documents. He told Carlson that her $73,000 in savings would be better in annuity with American Family. Carlson was concerned that moving her money would affect her $100 monthly distribution check, but the agent assured her that American Family would match the payout.
"You'll be doing the right thing," he said. "You'll be all set."
So Carlson moved the $73,000 and bought a second annuity for $3,000.
When Carlson's first check came in the mail in August 2005, it wasn't for $100—it was for just under $17. The second check was for the same. Concerned, Carlson called the hotline for American Family's office—she'd been promised access to free legal services with the living trust. But the woman on the line was anything but helpful.
"Well, you signed the paper," the woman said.
"She got snotty, and I was going to start in on her about it, but she hung up on me! That got me," Carlson, 84, recalls at her kitchen table, peering out from thick tan glasses and running her index finger along the rim of a lipstick-stained Styrofoam coffee cup. She balls up her slender, red-nailed fingers, raises a withered fist in a gentle uppercut, and lets out a chuckle. "Too bad we weren't in person," she says.
A Dateline NBC undercover investigation led Carlson to believe she'd been duped. The program exposed misleading practices of in-home agents selling financial products to seniors. Minnesota Attorney General Lori Swanson appeared on the show.
"That's when I got on my high horse and wrote to the Attorney General's Office," Carlson says. "They thanked me for being observant and coming forward."
Swanson's staff documented Carlson's story and told her the bad news: Her money was locked up for 14 years. If she wanted to get it out early, she'd lose 18 percent of the principal.
That hadn't been in the sales pitch.
But the pattern was familiar to the attorney general's staffers. Starting in 2005, American Family sold living trusts to as many as 2,000 Minnesota seniors, at an average cost of about $2,000, according to the Attorney General's Office.
American Family Legal Plan and its sister company, Heritage Marketing, were owned and operated by father-and-son team Stanley and Jeffrey Norman, out of Santa Ana, California. The AG alleges that agents from the Normans' companies were trained to masquerade as financial advisors and estate planners, and to use misleading, hard-sell tactics to close the deal.
In March 2007, the Attorney General's Office filed a lawsuit alleging that the Normans and their companies had engaged in consumer fraud, false advertising, and deceptive trade practices, and that they had violated Minnesota insurance solicitation laws.
In June, Judge Stephen C. Aldrich issued an injunction against the companies, prohibiting them from doing business in Minnesota.
In September, Swanson testified before the Senate's Special Committee on Aging. "When asked by a reporter why he robbed banks, Jesse James supposedly replied, 'Because that's where the money is,'" Swanson began. "For the same reason, our senior citizens are often considered prime targets for the sale of products."
The matter has since gone to trial. But Jeffrey Norman says that he is the real victim in the case—robbed of time, money, and reputation. Were it not for his company, Minnesota seniors would have lost money when the stock market tanked, he says. Instead, their money was protected in annuities with guaranteed returns.
As for Carlson's check amounts, Norman says the discrepancy was due to a change in tax law rather than his company's product. He blames a court-issued injunction for preventing his company from contacting its clients to clarify the rules.
"I'm as proud as heck of what we did for Ms. Carlson. Who wouldn't be?" Norman says. "Everything going on in the state of Minnesota by the attorney general was a complete sham, and they proved it in court."
The Normans are the last-standing defendants in a series of consumer-protection lawsuits filed by the AG. Four other companies have settled: Allianz Life Insurance of North America, American Equity Investment Life Holding Company, Midland National Life Insurance, and Aviva USA Corporation/AmerUS Group Co.
"It's not just out-and-out scam, shady companies," says Ben Wogsland, communications director for the Office of the Attorney General. "It's the big dogs who are out here caught in the climate of excess—kind of similar to what you saw with the mortgage meltdown."
Representatives from these companies allegedly made hefty commissions on long-term financial products that locked the seniors' money away for years. The companies were ordered to pay a total of $750 million to their victims.
The Normans sold these products as well as the living trusts. They, however, were unwilling to settle. "In this case, the company has been unwilling to do what they should do," Wogsland says. "So we've taken it all the way to trial."
Jeffrey Norman paints it differently—with himself as David, the AG as Goliath.
"Most, if not all, of the insurance companies choose not to defend their products and instead settle the lawsuits. However, these numerous settlements touted by the Minnesota attorney general have not resulted in a finding of whether or not the annuities sold were unsuitable," Norman says in a written statement. "In a daunting effort similar to David vs. Goliath, I made it my sole quest to advocate and defend the wonderful benefits that can be afforded through annuities...."
The Normans' companies have been sued in Florida and North Carolina, where the cases have settled for very little money. A lawsuit is ongoing in Pennsylvania. And a few months ago, the Ohio Supreme Court prohibited American Family Legal from doing business in the state and ordered the Normans to pay $6.4 million in fines for illegally practicing law.
Here in Minnesota, Aldrich is expected to issue a ruling on American Family soon. The Attorney General's Office is seeking money for seniors who, like Carlson, bought living trusts for $1,995.