Some creditors upset with Shurwest’s ‘fake bankruptcy’ plan – InsuranceNewsNet

0

No one disputes that Shurwest owes dozens of multimillion-dollar creditors as the independent marketing organization tries to dig up its links to a retirement scam.

How much the embattled company ends up paying is the subject of a fierce dispute in an Arizona bankruptcy court.

Shurwest filed for Chapter 11 bankruptcy on Aug. 31, 2021, in a bid to settle dozens of lawsuits, while firmly maintaining that company executives knew nothing about a pension fraud scheme tailored to hundreds of IUL sales.

According to bankruptcy documents, Shurwest faces 140 claims totaling more than $197.5 million. The current dispute in court is whether to allow Shurwest to complete its bankruptcy under Chapter 11, Subchapter V, under which it can negotiate more favorable terms.

“The debtor has improperly attempted to slip into a sub-chapter V on the technical point that most of his debts are not liquidated because they have not yet been reduced to judgment,” reads a motion filed the last week by Timothy W. Horn, owner of Horn Financial Services. in Austin, Texas.

Horn claimed a loss of more than $1.6 million while working with Shurwest. In court documents, Horn claimed that Subchapter V was for small business debtors, which he claimed Shurwest was not.

“The debtor was able to unfairly take advantage of the simplified and debtor-friendly provisions of Sub-Chapter V to evade many procedural protections intended to protect the interests of a large and diverse set of creditors such as those who hold claims on this domain”, the Horn filing mentioned.

Neither Horn nor his attorney returned phone and email messages seeking comment. In his petition, Horn asks the court to convert the Shurwest case to a “traditional” Chapter 11 bankruptcy. The case should first be converted to Chapter 7, reads Horn’s petition, and then to Chapter 11.

Similarly, Minnesota Life has filed a motion asking the court to convert Shurwest’s bankruptcy to Chapter 7. The court will hear arguments on May 17 on both petitions to convert Shurwest’s bankruptcy.

“fictitious bankruptcy”

According to court documents, Shurwest is offering to pay the claims through an arbitration process using proceeds from three years of revenue, which it expects to be around $6.14 million. Shurwest reported current gross income of approximately $125,000 to $150,000 per month and future operating expenses of $35,000 to $40,000 per month.

That means unsecured creditors would receive about 3.1% of their total claims, according to a petition filed by Horn.

Beginning in 2019, Shurwest began branding itself as The Quantum Group. The two companies appear to share the same address, phone number and employees, Minnesota Life noted in a lawsuit it filed against Shurwest in July 2021 in U.S. District Court for the District of Minnesota.

The Quantum Group’s senior executive, Jim Maschek, partner and president of distribution, also signed Shurwest’s bankruptcy paperwork as its representative. Maschek signed up as president of Shurwest.

In their bankruptcy court filings, Horn and Minnesota Life claim that Shurwest is trying to prevent The Quantum Group from paying any restitution.

“The debtor filed for bankruptcy solely for the purpose of using the automatic stay and other Chapter 11 provisions to summarily destroy the lawful rights and interests of its victims, many of whom are elderly,” Minnesota Life said in a filing. judicial. “Cause exists under the bankruptcy code…to dismiss or convert this bogus bankruptcy, which is a ploy for the debtor, his Quantum alter ego, and insiders to walk away unrepentant and unscathed.”

Shurwest sold Minnesota Life products for several years until problems arose with alleged fraudulent sales. Minnesota Life says policy claims were changed on more than 1,000 policies sold through Shurwest between 2014 and 2018. Minnesota Life itself is reportedly being sued by several disgruntled customers.

A Minnesota Life attorney did not return a message seeking comment. A Minnesota Life spokesperson said the insurer is not commenting on pending litigation.

Shurwest filed a lengthy bankruptcy settlement plan in November. The whole plan is the best way for Shurwest to repay injured parties, said Isaac Rothschild of Mesch Clark Rothschild, a Tuscon, Ariz. law firm handling Shurwest’s bankruptcy filing.

“It is possible that Shurwest’s annuity business will continue to operate, and if there is light at the end of the tunnel through a revamped plan, it will pay off the debts so that Shurwest can grow its business and maximize the back to creditors,” he said. Explain.

The plan goes through a comment period and an effort to build consensus among creditors, Rothschild said.

“The majority of our contractual creditors agree,” he added. “The majority of individual investors suggested that our plan might provide an appropriate mechanism. And we’ve been working with them over the last month to try to figure out what those factors are and what that mechanism should look like.

Retirement scam

Shurwest executives insist they had no knowledge of a pension scam used to inflate sales of indexed universal life policies. Prosecutors say the scam came from a company called Future Income Payments (FIP).

Through various marketing efforts, FIP appealed to retirees by offering them a lump sum in exchange for a portion of their future pensions. FIP called the practice “structured cash flow,” and the company used brokers and insurers to find investors — often retired veterans, teachers and firefighters.

Unbeknownst to many investors, future pension payment terms required them to pay what often amounted to an annual interest rate of more than 100% over a five-year term.

Over time, another layer was added to the scam, prosecutors said. Investors were asked to fund IUL policies with their FIP payment, ostensibly to replace the pension as a retirement scheme. However, prosecutors said the new layer just created another opportunity for rogue agents and FIP representatives to further abuse investors through hidden and high fees.

“This vehicle allows me to earn an additional 5% to 6% when I fund a life insurance policy,” Melanie Schulze-Miller, national life insurance sales manager for Shurwest, wrote in an email from 2016 to his boss. “Better for the client, better for us, better for the agent, and it actually creates a bigger life insurance policy because the premiums are even higher (so even better for us).”

Emails between then vice president of sales Jim Maschek and co-founder and president Ron Shurts show that Shurwest executives were wary of the idea of ​​FIP when it was first proposed. Shurts wrote that he was “uncomfortable” with the idea and wanted compliance officials to reconsider.

Schulze-Miller would go on to start his own company called MJSM Financial, which handled many of the fraudulent sales, according to court documents. Schulze-Miller claimed she did it at Maschek’s suggestion, according to court documents. Shurwest executives say Schulze-Miller has gone rogue with FIP sales.

Pairing FIP with life insurance sales has paid off for Shurwest. According to court documents, the company’s annual gross revenue was $15.7 million in 2016 and jumped to $21.1 million in 2018.

In a recent court brief, Minnesota Life said it discovered 274 IUL policies sold through Shurwest that were linked to the FIP.

“Everyone at Shurwest, including Maschek and Shurts, was fully aware that we were promoting FIP to fund life insurance policies,” reads an April 2021 affidavit signed Schultze-Miller.

4 degrees of responsibility

Shurwest has good reason to want to settle bankruptcy claims as soon as possible. Due to the lawsuits, Shurwest spent more than $1.7 million on professional fees alone in the first two quarters of 2021, according to court documents.

The Shurwest plan offers an “option to arbitrate” claims or goes through an expedited arbitration process. Creditors who opt out of arbitration will resolve their claims through the Claims Objection Process provided by the Bankruptcy Rules of Procedure.

A claims arbitrator will categorize claims into one of Shurwest’s four categories of liability, depending on the plan. Category 1 claims will receive a distribution of “100% of the prorated amount of its authorized claim,” the plan says. Category two claims will receive 50% and category three, 25%.
Category four claims will receive a nominal payment, according to the plan. These claims would be considered to have “no material connection with Shurwest and are unlikely to prevail in litigation against Shurwest,” the plan says.

“The debtor believes that the plan will provide creditors with a greater return than they would receive in a Chapter 7 or Chapter 11 liquidation,” the plan states. “As a result, Shurwest can satisfy the ‘best interests of creditors’ test for the plan.”

Editor-in-chief of InsuranceNewsNet, John Hilton has covered business and other beats in more than 20 years of daily journalism. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.

© All content copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reproduced without the express written consent of InsuranceNewsNet.com.

Share.

About Author

Comments are closed.