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Litigation over the most popular type of deferred annuities in the country is heating up as attorneys general and regulators in three states have begun targeting the companies that sell them. The states claim that equity-indexed annuities, which are being accused of having lengthy maturity periods and high withdrawal penalties, should not have been sold to senior citizens. Last month, the attorney general of Minnesota sued Allianz Life Insurance Co. of North America for selling annuities that she claims were unsuitable for seniors. In December, securities regulators in Massachusetts signed a consent decree with a company that sold equity-indexed annuities. And in August, the Illinois attorney general filed two suits against several companies that sent mailers to seniors about equity-indexed annuities. The state actions are the first to specifically target sales of equity-indexed annuities, or EIAs, which guarantee returns based on one interest rate while combining rates tied to a stock market index. In a speech last November, Andrew J. Donohue, director of investment management at the U.S. Securities and Exchange Commission, said his division is “currently taking a close look at equity-index annuities” in light of recent concerns over the marketing of them. Dozens of suits The regulatory and state actions come as dozens of lawsuits have been filed in recent years regarding sales of EIAs. “The litigation that you’re looking at now is proliferating over this equity-indexed annuity,” said John Hargrove, shareholder, president and chief executive of Fort Lauderdale, Fla.-based Gordon Hargrove & James, which has filed nearly four dozen suits. “We see more lawsuits popping up in different jurisdictions.” In her Jan. 9 suit, Minnesota Attorney General Lori Swanson claims that Allianz sold deferred annuities, including equity-indexed annuities, that were unsuitable for seniors. In some cases, customers could not access their money for 15 years. Swanson said the suit is the first to be filed by her office against a life insurance company over annuities sold to seniors. “You’re dealing with people with limited savings,” she said. “You’re dealing with a population that needs compensation. It’s unconscionable for an insurance company to profit on a senior citizen who needs their money to live.” She added that, “if necessary, we’ll take action against other companies.” Jim McManus, a spokesman for Minneapolis-based Allianz Life, e-mailed a statement saying the company “strongly disagrees with the allegations made by the office of the Minnesota Attorney General. Allianz Life is confident that it has complied with Minnesota law and will vigorously defend our products, practices and legal position.” Illinois Attorney General Lisa Madigan filed two suits on Aug. 25 against companies that used allegedly deceptive mailers to provide leads for agents and lure seniors into buying equity-indexed annuities. Rebecca Pruitt, assistant attorney general in the consumer fraud bureau at the state attorney general’s office, said equity-indexed annuities have become increasingly popular in part “because of the marketing techniques that are being used, like the ones we alleged are being deceptive.” Michael Hayes Sr., a partner at Chicago-based Bell, Boyd & Lloyd who represents one defendant, Investors Union, said the company has not violated any consumer fraud statutes and that the allegations are incorrect. “There are no tricks involved,” he said. Charles Schmadeke, a partner at Chicago-based Hinshaw & Culbertson, who represents the defendants in the second suit, American Investors Life Insurance Co. and Senior Benefit Services of Kansas Inc., declined to comment but denied any wrongdoing. On Dec. 19, the securities division of the Massachusetts secretary of the commonwealth fined Investors Capital Corp. $500,00 for allowing its agents to improperly sell equity-indexed annuities to seniors. Under a consent decree, the company agreed to lift certain surrender fees. “The industry is waiting to see whether there are going to be more of these actions by government officials,” said Robert Phillips, a partner in the Los Angeles office of Reed Smith who represents several insurance companies.

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