LSW Sued in IUL Pyramid Sales Scheme (Class Action Certified)

To download a copy of the actual Class Action Complaint, click on the following link:

If you are selling Indexed Universal Life (IUL) from LSW, this may give you pause. Although, my newsletter reviewing the “new” 7702 IUL policy from LSW should have been all you needed to have second thoughts. To read my new LSW IUL review newsletter, click on the following link:

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What is a “pyramid scheme?”

It’s a sales platform where the product sold is secondary and what is most important is revenue made off of new recruits to the platform.

Who are the defendants in this Class Action lawsuit?

Life Insurance Company of the Southwest (LSW), Premier Financial Alliance (PFA), Mehran Assadi, David Carroll, Jack Wu, and others. The one that really jumps out at me is Mehran Assadi (Chairman, CEO, and President of National Life Group).

It is alleged that PFA became LSW’s #1 IUL sales IMO (FPA within the first six months of the scheme being in existence issued policies with over $1.3 billion in face value).

Summary of the Case

It is alleged (taken from the complaint) that….

  • PFA (an IMO) and LSW “conspired to defraud” plaintiffs in what is described as a pyramid scheme (a multi-level marketing (MLM) platform).
  • PFA targeted recent Chinese, Vietnamese, Filipino, and other immigrants and their families with promises of riches derived from recruiting people to buy—and—sell the Living Life IUL policy issued by LSW (this policy is ONLY available to agents licensed with PFA).
  • Defendants told prospects that the only way to succeed was to recruit new agents. This was the only way to make more money and move up the pyramid.
  • Defendants didn’t tell recruited agents that their prospects for success were very low or that they would receive very little money from their recruits.
  • Defendants used rags-to-riches testimonials replete with false and misleading statements to attract new agents.

To join PFA and avail yourself to the “opportunity” at hand new agents had to:

  1. Pay $125 to become a Premier associate.
  2. Buy LSW’s “Living Life” IUL on yourself (must be done before getting insurance licensed).

The 5-5-30 plan—new recruits were told that within the first 30 days they needed to:

  • Recruit five people to become “Premier” associates.
  • Sell five Living Life IUL policies.

Your policy counts as one as do policies on your spouse, children, mother, father, or friends.

This is a classic MLM tactic where people are recruited under the allure of future riches and all you have to do to get started is sell products to your family/friends. It might sound a little like WFG.

So, what’s wrong with this business model?

It’s interesting, but in one of the original complaints, it is alleged that the Living Life IUL at LSW is a terrible product. That was removed from the amended complaint. I don’t know why. I reviewed that product when it hit the streets and I thought it was worse than LSW’s already average IUL product. My guess is that if this goes to trial the quality of the product will become a key component for a jury.

This is a pyramid scheme class action lawsuit because:

  • The defendants preyed upon a specific minority class with allegedly false statements about the wonderful financial opportunity being offered to them.
  • That the money to be made in the scheme wasn’t selling IUL products to the public at large, but was made mainly by recruiting new advisors to the platform.
  • That the majority of money made in the pyramid was by those at the top (so all those testimonials about how new recruits can make tons of money and live a lavish lifestyle were unfounded).

Damages—what are the plaintiffs asking for?

  • Rescission of the IUL policies issued. I’m guessing by now there are several billion in face value that have been sold. If LSW loses this lawsuit and has to rescind those policies, I can’t imagine the financial hit the company will take (which probably will be taken out on existing policyholders).
  • Financial damages based on actual financial harm
  • Punitive damages—punitive damages could be huge and if this comes to pass, again, who will pay the price? Shareholders and existing policyholders.

My final thoughts….

I used to like LSW back in the day when Wade Mayo was the President. He had professional ethics and actually cared about the company’s reputation and its policyholders.

I don’t know Mehran Assadi, but to have the president of a company green light the design of what was alleged to be a sub-standard IUL to be used exclusively in what is now being called a pyramid scheme (and to be up on stage at PFA recruiting events to get more agents into the bottom of the pyramid), sure makes me wonder (and it should make all agents who sell LSW products wonder).

Finally, this isn’t a criminal action. This is a civil action and while it doesn’t come with the same presumption of innocence, you never know how these cases will turn out. It could go to trial and either party could win. If that happens and LSW prevails, I’ll be the first one to put out a newsletter about it. My guess is that this will settle like most cases do and many times the defending party will not end up admitting any wrongdoing but will pay quite a bit of money to make it go away. We’ll see. This will probably take a few more years to compete.

IUL Rate of Return Probably Chart (quite eye-opening!)

To download the IUL ROR probability chart, click on the following link: