According to the plaintiffs in the Prudential action, the MyTerm life insurance program fraudulently targeted unsophisticated, low income individuals who otherwise were unable to obtain insurance policies through conventional means. (Photo: iStock)

Three former supervisors in the corporate investigations division of the legal department of the Prudential Insurance Co. of America have filed a lawsuit in a state court in New Jersey against Prudential along with Deborah Bello, the insurer’s chief regulatory officer, alleging that a life insurance program called “MyTerm,” created in 2014 by Prudential with Wells Fargo Bank, had a large number of similarities to how Wells Fargo had opened fraudulent bank accounts.

In response to the allegations, Prudential Financial Inc. (NYSE: PRU) has announced that it will suspend the distribution of MyTerm policies through all Wells Fargo bank branches and website, pending the results of Prudential’s review of how the product is sold by Wells Fargo.

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Launched in 2007, MyTerm is a simplified issue term insurance product that was created to give customers greater choice and access to life insurance through a self-assisted, technology-enabled application process. In June 2014, Prudential entered into a distribution agreement with Wells Fargo, whereby the MyTerm product was made available to Wells Fargo customers through self-service kiosks in Wells Fargo bank branches and its website.

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Wells Fargo recently acknowledged that bank employees had created at least two million fraudulent bank accounts. That led to nearly $200 million in fines being imposed on the bank — and to its firing of more than 5,000 employees.

According to the plaintiffs in the Prudential action — Julie Han Broderick, Darron Smith, and Thomas Schreck — the MyTerm life insurance program fraudulently targeted unsophisticated, low income individuals who otherwise were unable to obtain insurance policies through conventional means. The plaintiffs alleged that applicants for MyTerm policies, who were Wells Fargo customers, were not required to submit “any meaningful medical information about themselves” as part of the application process.

As alleged by the plaintiffs, the MyTerm policies had low premiums and were designed to be self-service and purchased only at kiosks located at Wells Fargo or on home computers using Wells Fargo credit cards or Wells Fargo checking or savings accounts because Wells Fargo representatives were not licensed to sell insurance.

According to the plaintiffs, after learning as early as January 2015 of an extraordinarily high “lapse rate” in these policies, Prudential sent a survey to MyTerm policy clients to determine the cause of the high lapse rate. Those surveyed, the plaintiffs asserted, ultimately showed that:

        • More than 700 emails were returned as undeliverable.
        • Twelve clients cited as the reasons for the cancellations that they did not understand the policy or even know about the policy premiums.
        • At least one client in Arizona complained of high pressure tactics from a Wells Fargo representative who was trying to sell insurance to a college student who did not need coverage.

Prudential took no action in response to the survey results, the plaintiffs asserted, until August or September 2016, when it conducted an inquiry into whether a fraud scheme similar to the fraud relating to Wells Fargo bank accounts had occurred at Prudential. The plaintiffs asserted that Prudential’s review found, among other things:

        • A 70 percent lapse rate among the MyTerm policies sold in 2014.
        • Spikes in sales near the end of each quarter for MyTerm policies.
        • MyTerm policies had been sold predominately to individuals with Hispanic sounding last names concentrated in southern California, southern Texas, southern Arizona, and southern Florida.

The plaintiffs alleged that in or about late September, the CID received a call on its fraud hotline from a client located in Arizona stating that he had not purchased a MyTerm policy and wanting to know why he had received a lapse notice. The plaintiffs said that the CID determined that the MyTerm policy had been opened using a Wells Fargo bank IP address and that the funds had come from a Wells Fargo bank savings account that the Arizona client said had contained a small balance and that he had never used.

The allegations

The plaintiffs said that they concluded that someone had fraudulently purchased a MyTerm policy using the Arizona client’s name; had used his savings account for the first low premium payment; and then had tried to cancel it before another withdrawal was made.

Moreover, they alleged in their complaint, the corporate investigations division identified “numerous other clients with experiences similar” to that of the Arizona client, where a MyTerm policy was opened, one premium paid, and the policy cancelled before the next payment was due.

The plaintiffs asserted that, under their supervision, the corporate investigations division listened to all calls associated with the MyTerm policies and learned that most of the clients did not speak English and needed a Spanish interpreter on the call to assist; that many of these clients did not know what they purchased regarding the MyTerm policies and many did not know how much they owed each month in premiums; and that, on several occasions, a Wells Fargo representative called Prudential, sometimes with a client and sometimes without, asking about the MyTerm policy and how to cancel it, even though no Wells Fargo representatives were supposed to be involved in the sales of MyTerm policies.

According to the plaintiffs’ complaint, Smith conducted an investigation that found that:

        • Eighteen clients who purchased the MyTerm policies allowed them to lapse or they were cancelled and then repurchased them two more times.
        • Ninety-nine clients who had purchased MyTerm policies allowed them to lapse or they were cancelled and then repurchased them at least one more time
        • There were unusual email addresses listed on the MyTerm policy applications, such as noemail@wellsfargo.com.
        • Wells Fargo email addresses were listed on the MyTerm policy applications — for example, where the MyTerm policy holder was Jason Smith, the email address might be for jolmdoel@wellsfargo.com.
        • Names listed on the email address did not match the name of the MyTerm policy holder.
        • There were unusual street addresses listed on the MyTerm policies, such as Wells Fargo Drive.
        • Cell phone numbers were listed as emails, such as 1234567@verizon.net, which was very similar to how fraudulent bank accounts were opened at Wells Fargo;
        • There were high lapse/cancellation rates in 45 days or less from the MyTerm policy placement.
        • Overall, there were a large number of similarities between how Wells Fargo opened fraudulent bank accounts and how the MyTerm policies were being sold through Wells Fargo.

According to the plaintiffs, Prudential did not want corporate investigations division to conduct client outreach, preferring instead to give Wells Fargo the first opportunity to respond in order to maintain that business relationship. They alleged that Prudential’s upper management “has engaged in and continues to engage in a concerted effort to prevent and cover-up these facts from regulatory and law enforcement authorities and the general public.”

The plaintiffs said that they had refused to participate in the cover-up, suffering “ongoing retaliatory conduct  … in an attempt to silence them,” resulting in their termination.

Prudential’s official response

Last year, the company said in its corporate release about the case, Prudential’s Individual Life Insurance business surveyed Wells Fargo customers about their experience with MyTerm, including reasons why some of them allowed the product to lapse. The customer responses did not indicate potential fraudulent activity. Following the revelations about Wells Fargo’s sales practices this fall, Prudential expanded its review into how the product was sold and asked for Wells Fargo’s assistance in gathering all the necessary facts.

“We stand behind the MyTerm product but have decided to suspend sales of that product through Wells Fargo’s retail banking franchise until we have all the facts about whether it is being distributed properly and in the best interest of customers,” said Steve Pelletier, executive vice president and chief operating officer of Prudential’s U.S. Businesses. “While our review is ongoing, Prudential remains squarely focused on doing what is right for our customers. If any Wells Fargo MyTerm customers have concerns about the way in which the product was purchased, we will reimburse the full amount of the premiums they paid and cancel the policy. We have also set up a toll-free hotline for these customers.”

See also:

Elder financial fraud may be worse than thought, study says

FINRA close to filing fraud rule for ‘vulnerable’ investors

15 best practices to protect clients from elder financial fraud

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