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Minnesota Court Protects Older Defrauded Investors

An appeals court upheld a $7.5 million judgment against a financial services company found liable for defrauding older investors. AARP had urged this result.


The State of Minnesota sued American Family Prepaid Legal Corporation over its tactics in marketing and selling financial products to older people. First, American Family marketed prepaid legal plans to older people. Using scare tactics about the dangers of probate and inflated estimates of the value of the older person’s home, American Family convinced victims they needed a legal plan to avoid probate. The estate plans they received were sloppy and sometimes invalidated other pre-existing estate plans that were developed with competent legal counsel. American Family had insurance sales agents deliver the estate plans to the older person’s home. The insurance sales agent then pressured older people into purchasing long-term annuities, using the information they had gathered from the estate plan.

The ultimate goal of marketing the prepaid legal plans was to try to sell long-term annuities to people who were unlikely to live long enough to reap any benefit from them. The average age of the victim was 75 and the term of the annuity was 20 years. Hefty early withdrawal fees were not properly disclosed. The company urged dozens of older people, including many with no other fixed assets, little liquidity and limited income, to purchase the annuities, which are generally considered to be unsuitable for older people. Far from protecting them from running out of money, as the sales agents urged, purchasing the annuities left the older people extremely vulnerable, with no rainy day funds and no way to benefit from the annuity.

Minnesota law protects older people from marketing tactics such as those used by American Family, including prohibiting the sale of inappropriate annuities. Agents are required by law to assess the customer’s investment experience, knowledge, age and other factors included in Minnesota’s “suitability standard.” American Family developed a questionnaire to assess the suitability of the sales, but apparently used it only to convince the victims that the annuity was appropriate for them. After a trial, American Family was found to have violated numerous Minnesota laws and was ordered to pay $7.5 million in fines and restitution to its victims.

American Family appealed, arguing, among other things, that Minnesota’s suitability standard is unconstitutionally vague and that the restitution award would be a windfall for the consumers.

AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief with Mid-Minneapolis Legal Aid. The brief detailed the complexity of annuity products and the history of efforts to market and sell inappropriate financial products to vulnerable populations. It also discussed some of the characteristics of older people that make them vulnerable to pervasive, ever-changing and often hard to spot scams that target older people. The brief further noted that many cases of financial fraud go unreported by older people because they are unaware they are being duped, or are too embarrassed or afraid to report it. The brief supported the Minnesota “suitability standard” as a critically important safeguard to protect older people and supported the award of restitution to disgorge the wrongfully obtained funds and dissuade potential wrongdoers from violating the law.  

The court dissected American Family’s arguments point by point and found that the trial court had made no errors in entering a judgment of $7.5 million. The court specifically rejected the argument that the Minnesota suitability standard is unconstitutionally vague.

What’s at Stake

Older consumers are a frequent target for scams. They have amassed a lifetime’s worth of earnings, which they often fear will not last for the remainder of their lifespan. They fear the risk of loss much more so than a younger person would, making them susceptible to messages about “safe investments.” Unfortunately, many older people also often have diminished financial decision-making capacity, so they may not be able to evaluate the claims made about the products being sold. Consumers must have every possible enforcement tool available to protect themselves from frauds, especially since the nature and complexity of fraudulent products and sales tactics changes more quickly than the law can address.

Case Status

State of Minnesota v. American Family Prepaid Legal Corporation was decided by the Minnesota Court of Appeals.

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