Between 2004 and 2008, brokers and insurance agents across the country sold billions of dollars worth of Stranger-Originated Life Insurance (STOLI) policies to senior citizens with the intention of reselling the policies to investors, according to a June 21 Wall Street Journal article. These policies, while legal in many states, are coming under increasing scrutiny by regulators. Recently, brokers and insurance agents in Florida, Ohio, Minnesota and California have lost their licenses or been arrested for misrepresentations and fraud associated with the controversial investment products.
The sales agents pushed the policies on retirees, who were promised money once the policies were resold, and then falsified the individuals' net worth in order to secure larger policies. The policies were then resold to investors, who would pay the premiums on the premise that they would receive the insured amount upon the original owner's death.
In April, Steven Brasner, a sales agent specializing in STOLI policies, was arrested by Florida authorities on 22 counts of alleged grand theft, fraud and other offenses related to $78 million in STOLI policies. Regulators, however, aren't the only ones upset about STOLIs. Across the country, both insurers and investors are filing civil lawsuits for damages suffered due to broker fraud and misconduct. Brasner, in addition to facing criminal charges, has been sued by both insurers and investors who allege they lost money on the now worthless STOLI investments.