Ogles v. Security Benefit Life Insurance Company et al

COMPLAINT with trial location of Kansas City (Filing fee $400, Internet Payment Receipt Number AKSDC-4488054.), filed by Albert Ogles.

District of Kansas, ksd-2:2018-cv-02265

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4 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS AT KANSAS CITY) ALBERT OGLES,)) Plaintiff,)) v.) Case No.__________________) SECURITY BENEFIT LIFE) INSURANCE COMPANY; CLASS ACTION COMPLAINT FOR:) SECURITY BENEFIT) CORPORATION; GUGGENHEIM 1. BREACH OF CONTRACT) PARTNERS, LLC; and ROYAL 2. FEDERAL RICO) BANK OF SCOTLAND plc VIOLATIONS 3. UNJUST ENRICHMENT Defendants. COMPLAINT Plaintiff Albert Ogles, by and through his attorneys, brings this Complaint against Defendants Security Benefit Life Insurance Company ("Security Benefit Life"), Security Benefit Corporation ("SBC"), Guggenheim Partners, LLC ("Guggenheim") and the Royal Bank of Scotland plc ("RBS"), (collectively, "Defendants"), on behalf of himself and all other similarly situated persons who purchased annuity products issued by Security Benefit Life, on or after July 2012. Plaintiff alleges the following upon personal knowledge as to himself and his own acts, and as to all other matters upon information and belief, based upon the investigation made by and through his attorneys and expert consultants. 4 INTRODUCTION 1. Plaintiff's claims arise out of his investment in Security Benefit Life's "Total Value Annuity," commonly known as a "fixed indexed annuity." 2. In 2010, fixed indexed annuity sales totaled over $30 billion and were projected to grow substantially in the coming years. Prior to 2010, Security Benefit Life had not issued any indexed annuities. The company had also been weakened by the recession. Guggenheim Partners was attracted to the indexed annuity market and saw opportunity in the financially distressed Security Benefit Life. Although Security Benefit Life had never offered indexed annuities, it was a ready-made platform from which Guggenheim could launch indexed annuity products. Thus, in 2010, Security Benefit Life became a "Guggenheim Partners Company." 3. Guggenheim was attracted to the indexed annuity market because fixed indexed annuities provide an ideal vehicle for companies who issue them to gain access to large amounts of cash in the form of up-front premium deposits, many of which are one-time payments in the hundreds of thousands of dollars per each annuity. Once deposited with the company, the company can then invest the money and earn returns on the investments. This arrangement is made more attractive to the annuity issuer by the fact the actual returns on the investments are not paid to the annuity purchasers because fixed indexed annuities are designed to not actually participate in equity, bond, other security, or commodities investments. Instead, any interest credited to the annuity is done so according to changes in an external index chosen by the insurance company in designing the product. In other words, the earnings performance of the annuity is not based on the insurance company's asset management and investment successes, but 2 4 instead is passively linked (purportedly) to an external reference over which the insurance company should have no control. As for the actual returns created by the asset management and investment successes of the insurance company using the annuity purchasers' cash, those are kept by the insurance company and a substantial portion are ultimately paid as dividends to its parent company(ies). With the acquisition of Security Benefit Life in 2010, the parent company ultimately receiving such dividends would become Guggenheim. 4. Under its new ownership, Security Benefit Life's focus immediately shifted to indexed annuities and the company went from being unranked in indexed annuity sales on January 1, 2011 to number four as of December 31, 2011. In just two short years of being under Guggenheim's control, Security Benefit Life would rise to become the industry leader in fixed annuities and the second largest in the United States in indexed annuity sales. 5. Security Benefit Life's success in the indexed annuity market was driven by an aggressive marketing campaign aimed at both the sales force who would distribute the products and the consumers who would buy them. On both fronts, the primary pillar of the marketing efforts was the longevity and then current financial condition of Security Benefit Life now coupled with the investing power of the Guggenheim Partners. But, as explained below, the financial strength of Security Benefit Life was illusory and the investing power of Guggenheim Partners was not to be used for the benefit of the annuity purchasers, but instead only to promote Guggenheim's self-interests. 6. The phenomenal success of Security Benefit Life was also driven largely by the "Total Value Annuity" and its "5-Year Annuity Linked TVI Index Account," both of which 3 4 were developed by the Guggenheim Partners Companies in conjunction with the Royal Bank of Scotland. The product was touted by its creators as an innovation in the fixed indexed marketplace because it was linked to the Trader Vic Index Excess Return ("TVI Index") which tracks the prices of 24 highly liquid future contracts across physical commodities, global currencies and U.S. interest rates, and does so in a manner that purportedly takes advantage of both rising and falling market trends. In other words, the Total Value Annuity was purportedly built on an interest crediting strategy that was not equities oriented, but instead was more diversified and commodities-based and, if it lived up to its creators' hype, would provide higher interest credits at a time when historically low interest rates were not allowing other equity-indexed annuities to provide much "upside potential." The Total Value Annuity's upside potential was also hyped as being greater than its competitors' because, when the annuity purchaser allocated premium payments to the "5-Year Annuity Linked TVI Index Account," there would be no "cap" imposed on the interest crediting and there would be a 100% participation rate (at least initially). In addition to these features, the "5-Year Annuity Linked TVI Index Account" also had a "volatility control overlay" that would purportedly provide more stable returns even if the underlying Trader Vic Excess Return Index failed to perform as anticipated. 7. Along with these features, the original design of the Total Value Annuity made the "5-Year Annuity Linked TVI Index Account" the most, if not only, attractive interest crediting option available in the product because the only other options were the fixed account interest crediting option that provided only a 1.00% guarantee and the "S&P Annual Point to Point" account option that was capped at 2.75%. When presented with these options, most purchasers of the Total Value Annuity opted to allocate most of their 4 4 purchase payment dollars to the "5-Year Annuity Linked TVI Index Account" and its promise of greater upside potential. 8. A trade-off for being allowed to allocate premium dollars to the "5-Year Annuity Linked TVI Index Account" was the fact that once the allocation was made, no re- allocation could be made for a period of five years. And, any interest credits would only be determined at the five-year mark, meaning that the annuity purchaser would not know how much interest they would receive until five years after the initial investment because the interest was calculated based on the difference between the ALTVI Index as it was reported at the time of the initial investment and then as it was reported on the fifth anniversary from the initial investment. An attempt to re-allocate or withdraw from "5-Year Annuity Linked TVI Index Account" carried substantial penalties. 9. Five years after the Total Value Annuity's roll-out, the trade-off of the "5- Year Annuity Linked TVI Index Account" proved to not be worth it as the account failed to deliver. Purchasers who allocated their life savings to the account have seen little if any interest credited to their account. Meanwhile, the Guggenheim Partners companies and RBS have generated substantial profits all of which were derived from the premium dollars investors used to purchase the Total Value Annuity. 10. With the Total Value Annuity and its "5-Year Annuity Linked TVI Index Account," the Defendants in this action created a vehicle that would effectively lock thousands of annuity purchasers' life savings into a product that was both designed and expected by the Defendants to perform far below, and in stark contrast to the promotional sales and marketing messaging. The true nature of the product's design and the Defendants' expectations for its underperformance were fraudulently concealed from the 5 4 thousands of purchasers of the Total Value Annuity. The Defendants' actions have locked the Plaintiff and proposed Class members into an unsuitable and non-performing investment, all while the Defendants have enjoyed reaping substantial profits from other investments made with the Plaintiff's funds. 11. The investment dollars of the Plaintiff and proposed Class were obtained through a common course of deceptive conduct involving a centralized sales scheme orchestrated by Security Benefit Life, SBC and Guggenheim. The sales scheme employed uniform misrepresentations and omissions of material facts including that the annuities were worth substantially less than the purchase prices paid for them, and that the annuities are fundamentally inferior to comparable products. The Defendants also fraudulently omitted facts about the severe conflicts of interest created between Security Benefit Life, Guggenheim, the advisors selling the annuities, and the Royal Bank of Scotland who purportedly created, sponsored and administered the "external" index that was being used to manipulate and determine the interest credits (or lack thereof) for a substantial amount of the dollars invested in the Total Value Annuities. II – PARTIES & RELATED ENTITIES Plaintiff: 12. Plaintiff Albert Ogles is, and at all times mentioned herein was, a resident and citizen of the State of Alabama. As discussed in greater detail below, in July 2012, Plaintiff purchased a Security Benefit Life Total Value Annuity with the reasonable expectation that Security Benefit Life, SBC, Guggenheim and RBS would administer the annuity in such a way that it would perform consistent with the uniform representations 6 4 made in the standardized marketing materials and contract documents provided by the Defendants. Defendants: 13. Defendant Security Benefit Life Insurance Company ("Security Benefit Life") is a Kansas corporation with its principal place of business in Topeka, Kansas. Security Benefit Life issued, administered and managed its annuities, as well as its relationships with its co-Defendants and related entities in this District and elsewhere during the Class Period. The alleged misconduct set out herein occurred substantially in this district and such misconduct emanated, at least for Defendant Security Benefit Life, from its home office in Topeka, Kansas. Security Benefit Life is liable for its own acts and the acts and omissions of its related entities, producers, agents, employees, co-conspirators, and co- members of the RICO enterprise described herein including, but not limited to SBC, Guggenheim, Royal Bank of Scotland, Creative Marketing, Advisors Excel, Impact Partnership and Gradient Financial. Security Benefit Life can be served at One Security Benefit Place, Topeka, Kansas 66636. 14. Defendant Security Benefit Corporation ("SBC") is a Kansas corporation with its principal place of business in Topeka, Kansas. SBC, at all relevant times, was doing business in this District. SBC is Security Benefit Life's parent company and is controlled by Guggenheim. SBC is liable for its own acts and the acts and omissions of its related entities, affiliates, agents, employees, co-conspirators, and co-members of the RICO enterprise described herein including, but not limited to, Security Benefit Life, Guggenheim, Royal Bank of Scotland, Creative Marketing, Advisors Excel, Impact 7 4 Partnership and Gra