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But then nothing seemed ordinary about the sheaf of papers retired librarian Jeannette Cranford obtained a few weeks ago from her 85-year-old mother (whose name we're not printing at Cranford's request).
The papers are the by-product of an unusual come-on directed toward elderly people in California, Idaho, and perhaps other U.S. states, in which seniors are offered $1,000 if they'll sign notarized contracts in which they commit to handing over detailed personal medical and financial information.
This deal was briefly advertised on Bay Area Craigslist in mid-October under the heading "PAID survey for senior citizens ages 72-85." But it's being marketed for the most part directly by insurance agents, who've been recruited by a secretive Burbank company called Lighthouse Insurance Marketing Inc. to promote this "survey program" in exchange for $100 per signed contract.
In addition to completing the survey, Cranford's mother was also asked to sign, in the presence of a notary public, an agreement permitting a private company to continue obtaining updates on her personal medical files until after her death.
Seniors who sign up for this deal also agree to have their personal health information used in what is vaguely referred to as "longevity transactions," which, the contracts say, will be somehow based on the subject's "mortality."
As any reasonable person reading such language would be, Cranford was baffled. What kind of transactions are based on mortality? And why don't the contracts spell out what those transactions are?
The mystery seemed to dissipate when Cranford got a call from her estranged sister, who had persuaded her mother to sign the contracts at the urging of a friend who is a former insurance agent.
"After all this worry, and trying to figure out what they're going to do with this information, my sister calls me to try to reassure me that everything is fine," Cranford says. "She proceeds to tell me that it's to take out a life insurance policy. All she told me is that, 'Let's say they take out a million-dollar policy on mom, and this company buys it from her beneficiaries for $25,000 each.'"
It appears these "mortality" contracts are connected to a group of companies involved in a little-known type of speculative investment scheme that might be likened to a high-stakes death pool.
An attorney for Lighthouse denied the information was being used to sell life insurance policies without seniors' knowledge. However, there seems to be evidence that the longevity and mortality transactions mentioned in the contract might have something to do with a little-known and macabre corner of the life insurance industry.
According to a lawsuit filed in Los Angeles in connection with a dispute among Lighthouse business partners, the company was established as the marketing arm of a complex scheme that involved finding elderly strangers upon whom to take out multimillion-dollar life insurance policies. Lighthouse's owners, Burbank insurance agents Tigran Khrlobian and Razmik Khachatourians, allegedly planned to resell, as a speculative investment, the right to collect the policies' death-benefit payout, according to the lawsuit complaint. The legal action contested whether profits from the scheme had been distributed fairly among partners.
Brian Manson, an attorney for Khrlobian and Khachatourians, says the suit incorrectly characterizes their business. "I want to be clear that the litigation has absolutely nothing to do with the survey program, or anything to do with the operations of Lighthouse Operations Marketing," Manson wrote in an e-mail.
Whatever plan was behind the "longevity survey," the whole affair seemed fishy to Jennifer Morse, a Napa estate planning attorney. A client recently contacted her for advice about Lighthouse Insurance Marketing contracts she had been asked to sign.
"My first gut reaction when she said they asked her for her Social Security number and driver's license number was, 'That's not right. Something is wrong with this whole thing,'" Morse said. "She said, 'What can be wrong with that?' I said, 'Identity theft is a big problem.' I suggested to her that she not only not sign this thing, but that she contact whomever had contacted her and ask them to give back whatever she had given them."
It's probably too late for Morse's client or Cranford's mother to rebottle their once-private medical and financial information now that it's been sold. But it may be possible to protect other seniors, who are largely ignorant of such modern risks as identity theft, and who, like most of us, had no idea that businessmen exist who profit by prospecting for old people they can convince to take out life insurance policies.
California Insurance Commissioner Steve Poizner's office said it was unaware of the Lighthouse longevity survey. But in Idaho, regulators recently asked purveyors of a similar $1,000 survey program to halt. "The information people are being asked to provide is very sensitive, and that's why we're concerned about it, and that's why we've asked them to stop the program until we've finished our information-gathering process," said Shad Priest, deputy director of the Idaho Department of Insurance.
Poizner should follow this lead and stop this scheme before it attracts additional seniors. Legislators in Sacramento, meanwhile, should call for hearings aimed at uncovering what's being done with the private medical and financial information Khrlobian and Khachatourians are scooping up through their come-on.
"It would be helpful to everybody, including the people selling this," says Prescott Cole, senior attorney for California Advocates for Nursing Home Reform, who has fielded complaints about Lighthouse Insurance Marketing's $1,000 survey program. "If they don't know where this information is going, let's get to the bottom of it. I think it's something both the Assembly and Senate Insurance Committees would like to look into."
The businessmen behind the Lighthouse "survey" have not been forthcoming about what, exactly, they're luring seniors into.
Manson, whose name and Bar Association number appeared in Internet postings relating to the $1,000 "longevity survey" offer, claims ignorance about the ultimate business purpose private information will be used for.
"That's what I can't answer because I don't have a finance degree," said Manson, who spoke with me on behalf of Lighthouse Insurance Marketing during four telephone interviews and an e-mail exchange.
Manson would not deny that Lighthouse transacted with other Khrlobian and Khachatourians companies, which were set up to profit from the resale of life insurance policies. But he said the survey program was separate from that line of business, and that information gleaned from the signed contracts is being collected by a Texas company called Examination Management Services, Inc. (EMSI), which agents peddling the offer told me is involved in similar deals nationwide.
When I asked to speak with an EMSI press spokesperson about the "longevity survey," I was referred to Kevin Malone, head of the company's underwriting business. However, Malone refused to answer questions over the phone, instead demanding I tell him how I found out about the program, and what I knew about it already. He asked me to contact him via e-mail. By press time five days later, however, he had not responded to e-mailed questions asking why EMSI was involved in collecting the information, whether it was being used in the resale of strangers' life insurance policies, and what measures were being taken to protect seniors' private information.
Nonetheless, through court documents, interviews, and other records it's possible to piece together an image of the business Lighthouse Insurance Marketing Inc. was apparently founded to transact.
At the very least, seniors are being lured into signing contracts that confuse even the attorneys and other experts I've shown them to. "There was no way in the world my mother knew what she was signing," Cranford notes.
What does seem apparent is that survey "subjects" are giving their private medical and financial information to a secretive group of companies whose representatives refuse to say what, exactly, is being done with it.
In an age of ubiquitous identity theft, and of growing financial abuse against seniors, this survey offer is unnerving. In 2004, San Francisco Chronicle reporter David Lazarus uncovered the story of how an employee for an India-based company that transcribed doctors' notes threatened to put UCSF Medical Center patients' personal data on the Internet. Like that debacle, the Lighthouse survey promises to create a large trove of once-confidential medical files that could potentially be passed among myriad unspecified people and companies.
Alice Gates, retired senior staff counsel to the California Department of Insurance, says the collection and dissemination of private medical information creates the potential of another UCSF-style private information snafu. "This whole situation is just a disaster like that waiting to happen," said Gates, who examined copies of the forms seniors are asked to sign.
Unlike the UCSF case, however, this information is destined for uses that apparently have little to do with preserving patients' health. Instead, the company coordinating the survey appears to be connected to companies involved in a little-known yet growing business that promoters call the "life settlements" industry, and which detractors call "stranger-originated life insurance."
As morbid as this may sound, so-called stranger-originated life insurance is nothing new. It's part of a multibillion-dollar industry involving venture capitalists, hedge funds, brokers, and insurance agents. Investors seek to profit by selling speculators on the idea that an insurance policy's death benefit will end up paying out more money than will be spent buying the policy from the insured person and then paying premiums until that person dies.
"First you have the insured person," says Joseph Belth, editor of The Insurance Forum, an independent periodical. "Then you have the idea that this person would then sell his ownership in the policy to investors — I call them speculators, because they're speculating in human life."
According to Belth, speculators commit to paying an upfront fee for the rights to collect the policy's death benefit, and agree to pay future premiums. The speculators then have the right to collect the death benefit when the insured person dies.
The practice of reselling life insurance policies to strangers began with the onset of the AIDS epidemic in San Francisco, when relatively young sufferers condemned to death by the disease sold life insurance policies to investors to obtain money during their final years. The practice has evolved into an industry called "viatical settlements," in which people with terminal illnesses sell their life insurance benefits to brokers.
Entrepreneurs have expanded this business to include policyholders who haven't been diagnosed with terminal illnesses, calling this line of investments "life settlements." Lately, the business has expanded further still to include people who don't yet have life insurance policies, but are encouraged to take out new, very large ones specifically for the purpose of reselling them. This, according to allegations in legal complaints filed by Khrlobian and Khachatourians' former business partner, is the type of business Lighthouse was set up to transact.
Entrepreneurs in this line of business say it has the humanitarian effect of providing money to seniors during what may be a time of great need. Detractors, however, call stranger-originated life insurance a macabre business in which investors, brokers, and speculators sit around hoping people they've bet on will die. Industry experts I've spoken with said they haven't heard of any murders associated with this business practice. But many find it disturbing just the same.
The first hint that the company promoting the Lighthouse longevity survey offer might somehow be connected to the stranger-originated life insurance industry appeared in the San Francisco Bay Area in mid-October in a series of online ads, which urged seniors interested in earning $1,000 in exchange for participating in a survey to respond to email@example.com. Two weeks earlier, the same e-mail address had appeared in online ads promoting "No Premium Life Insurance for Senior Citizens" in Daly City.
"We pay your monthly premium and will be the beneficiaries of your policy," the ads declared. "IN RETURN, YOU RECEIVE A LUMPSOME [sic] OF $120,000 to $150,000 within 60 days! All you need to do is pass the physical examination (again, FREE of charge), and you're set."
"Lagrimasllena" didn't respond to e-mails requesting comment on these advertisements.
But lawsuits recently filed in Southern California, as well as bankruptcy filings and lawsuits involving companies connected to Khrlobian and Khachatourians' businesses, offer more evidence of connections between individuals behind the company offering the "longevity survey" and the business of persuading strangers to take out life insurance policies for resale. These lawsuits detail a complex series of transactions involving a German venture capital firm and several interrelated private companies set up by Manson for his Burbank insurance agent clients.
According to a lawsuit filed by Moses Gazazian, a former partner in Khachatourians and Khrlobian's insurance business, this trio of agents spent several years assembling a tangle of companies dedicated to recruiting elderly insurance-policy holders, outside investors, and speculators in transactions designed to profit from the resale of multimillion-dollar life insurance policies. Again, Manson claims the characterization is incorrect.
Belth says that the middlemen such as Khachatourians, Khrlobian, and Gazazian earn the big, certain profits in the life-settlement business. "The important additional parties are the intermediaries, the ones who stand between the insured and these speculators," he says. "It's the intermediaries who are really cleaning up in this business. They get frequently huge commissions up front, while the speculators hope to make money down the road."
Gazazian's suit claims that his former partners cheated him of a portion of the premiums the companies were supposed to earn. In making his case, Gazazian spells out in detail how the insurance resale scheme functioned. He also provides possible clues to how information gleaned in the Lighthouse "survey program" might be used. "The main purpose of Lighthouse was to act as a marketing company," the lawsuit complaint says, "with respect to securing qualified agents and clients."
Gazazian referred me to his attorney, who did not return calls requesting comment. Manson, the attorney for Khachatourians and Khrlobian, sought to downplay links between the company promoting the "survey program" and his clients' insurance-resale operation, and claims Gazazian's characterization of his former business relationships is incorrect. "Moses Gazazian's claims as I see them below are false, and as I said before, he, his affairs, and the lawsuits relating to him are completely separate from the Survey Trust," Manson wrote in an e-mail. "I strongly discourage you from drawing a connection between Moses and the survey in your story."
According to Gazazian's lawsuit complaint, he, Khachatourians, and Khrlobian traveled to Germany to negotiate a deal with a Berlin venture capital firm in January 2005. The German investors were to front money for multimillion-dollar insurance policies taken out on seniors who had been recruited under the auspices of Lighthouse Insurance Marketing. The investors agreed to pay the policies' premiums — but only for two years, the lawsuit said.
During 2005, Gazazian, Khrlobian, and Khachatourians set up 12 life insurance policies in this way. The policies were set to "mature" — that is, to be resold to speculators — this year. Under a complex commission arrangement, the Burbank middlemen were to receive around $10 million, Gazazian claims. Given that the commissions represented a small fraction of the policies' face value, it appears that Lighthouse had generated policies with death benefits worth many millions of dollars.
Key to this and other life-insurance resale schemes is the two-year "maturation" period, during which investors must front premiums before reselling policies. This corresponds with what in the insurance industry is called a "contestability" period, after which an insurer is restricted in its ability to rescind or cancel a policy. Once ironclad, insurance policies become much more valuable for resale to speculators.
"When the two years is up, presumably they go back to the old person and say, 'The two years is up. Do you want to take over this policy?'" said Alice Gates, former senior staff counsel for the California Department of Insurance, who examined for SF Weekly documents relating to the Khrlobian and Khachatourians companies. "If the person says yes, they have to pay the money back and pay the premiums. If the person doesn't have the money to take over the policy, the agent says, 'Okay, we'll buy the policy from you.' That's called a 'settlement.'"
This investment scheme is most profitable in cases where the elderly prospect lives beyond the maturation period, at which time the policy's resale value leaps. The most profitable cases of all are those where the senior dies soon after the two-year benchmark. In those cases speculators don't have to eat into their investment capital paying premiums on a person who remains alive. So the trick becomes to find the prospects most likely to live 25 or so months beyond the date the policy is first taken out. "There's a profile of the kind of person they want," Gates notes. "They're pretty picky."
Knowing exactly when somebody will die, is, of course, elusive information, thus making policy-resale deals a high-risk investment. That's because if someone with a life insurance policy lives longer than expected, an investor may have to pay years' worth of premiums while delaying cashing in the death benefit.
"There are risks in this investment, and one risk is people could live longer than it says they can live," explains Jay Colodesch, a Red Bluff Realtor who says his mother invested in an insurance-policy resale scheme, only to have the insured person fail to die. "What upsets me, and her now, is that this was presented to her as a good investment, a sure thing. You just don't know when for sure."
What better way of identifying great targets upon whom to take out multimillion-dollar life insurance policies than to collect extraordinarily detailed information on people in their twilight years?
In exchange for $1,000, seniors responding to Lighthouse Insurance Marketing end up giving much more than answers to a questionnaire. They are asked to sign in the presence of a notary an "irrevocable durable power of attorney" guaranteeing access to their detailed medical information.
Seniors who take up the offer fill out IRS W-9 forms certifying their Social Security numbers and sign agreements guaranteeing access to their death certificates once they die. And, in an unusually vague portion of the contract, they sign agreements that allow "any person or persons" to conduct unspecified "transactions" based on subjects' "mortality."
The agreement Cranford's mother was offered did use strangely garbled language to say that companies could continue undertaking "longevity transactions" as long as she was alive, and that these could involve huge sums. "The individual also agrees that such Longevity Transactions may be made from time to time at any time prior to the death of the Individual and that funds any counterparty pays, or is to be paid, under a Longevity Transaction based on the Individual's mortality or longevity are not limited in amount," the contract reads.
I asked Manson to clarify. "The purpose of the survey is, as it says in the brochure, is that it is a survey intended to allow the Survey Trust to market proprietary data, to do proprietary and academic research, and to engage in morbidity and longevity financial transactions," he said.
Again, I asked Manson to explain those terms. "That's a complex question," he said. "I wish you'd leave Lighthouse's name out of it."
For complex questions involving dubious insurance schemes, the California Department of Insurance has a whole staff of investigators and attorneys. Insurance Commissioner Poizner should demand an inquiry such as the one currently under way in Idaho. Next, he should seek to shut down this misleading attempt to gather sensitive medical information from seniors. And he should get to the bottom of whether this information is destined to play a part in a macabre for-profit death pool.
If Poizner fails, members of the state Assembly and Senate should call for hearings aimed at figuring out precisely what it is these companies plan to do with the sensitive medical records they're collecting.