Fraudulent Voluntary Employee Beneficiary Association (VEBA) Lawsuit
Our attorneys are litigating two cases against American General Life Insurance Company, among other defendants, alleging the defendants fraudulently induced owners of small, closely held businesses to join and contribute money to Voluntary Employee Benefit Associations (VEBAs). The two cases are Smith v. American General (pending in the US District Court for the Central District of California) and Asokan v. American General (pending in the US District Court for the Middle District of Florida). Prior to these two cases, our attorneys litigated a case titled Ulti-Mate v. American General against American General on the same set of facts (but on behalf of different) plaintiffs to the brink of trial, which resulted in a favorable settlement for the plaintiffs.
The lawsuits allege that millions of dollars that small businesses contributed were used to purchase American General life insurance policies, providing millions of dollars in commissions and fees to American General.
Insurers Knew VEBAs Were Non-IRS-Compliant, Lawsuit Says
VEBAs are ordinarily used to provide employee benefits such as healthcare and life insurance. However, our lawsuits allege that the American General and its agents marketed tax deductions for any contributions that the small businesses made to the VEBAs, along with tax-free access to the funds years down the road.
The lawsuits further allege that American General knew that the promised tax benefits to the small businesses were illusory, and that the IRS would likely perceive the VEBAs as an illegal deferred-compensation scheme. According to the complaint, the VEBAs’ plan documents were identical to those that the IRS had deemed non-compliant in 2000.
Indeed, the lawsuits say that in 2004, American General received a legal opinion stating that the plans were likely illegal, but did not disclose this to the plaintiffs. According to the complaint, even after receiving this legal opinion, American General and its agents agents continued to market the illegal VEBAs and sell American General policies for at least four more years.
San Nine VEBA Participants Audited by the IRS
The lawsuits state that many victims were audited by the IRS and forced to pay back taxes and penalties. The lawsuits further allege that whether audited or not, Sea Nine VEBA participants do not have access to the funds they originally placed in the VEBAs and must wait to exercise a court-approved exit strategy before they can possess those any portion of those funds again.
The lawsuits allege VEBA participants have suffered significant financial losses as a result of putting money into this VEBA scheme instead of an alternative investment.
VEBA Current Case Status
Our attorneys are currently litigating both Smith and Asokan. Our attorneys survived a motion to dismiss in Smith and have finished gathering all relevant documentary evidence and obtaining sworn testimony from the key players in the alleged scheme. The next step in the case is developing discovery on the parties’ expert witnesses on damages.
In Asokan, the plaintiffs’ fraud claims (and other Florida state claims) survived a motion for summary judgment. Our attorneys are now preparing for a trial, set to begin on October 30, 2017 before Judge Paul Byron.
Did you participate in a Sea Nine VEBA?
If you participated in a Sea Nine VEBA that purchased American General Life Insurance policies, you may be affected by the lawsuit and the court’s denial of class certification. Know your rights. Get a free attorney consultation by contacting Michael Schrag at
(510) 350-9718 or by email at mls@classlawgroup.com.
About Michael Schrag
Michael Schrag has nearly 20 years of experience representing individual and small business clients in complex class action against large corporations concerning banking, telecommunications, and real estate. Mr. Schrag has also represented injured clients in individual cases and mass actions concerning medical malpractice, premises liability, and defective medical devices.
He served as Co-Lead counsel in Beaver v. Tarsadia Hotels, representing buyers of San Diego Hard Rock Hotel condominium units in a case against real estate developers concerning unfair competition. That case settled in early 2017 for over $51 million. While serving as Co-Lead counsel in Ammari v. Pacific Bell Directory, Mr. Schrag helped obtain a $27 million judgment for consumers who overpaid an AT&T subsidiary to advertise in Yellow Pages directories — a result the National Law Journal deemed as one of the top 100 verdicts in 2009.