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October 7, 2014

INSURANCE AGENT TO BE ARRAIGNED FOR DEFRAUDING OVER $1.4 MILLION IN COMMISSION SCHEME

Filed under: California Defense Attorney — fayarfa @ 2:53 am

SANTA ANA – An insurance agent is scheduled to be arraigned today for defrauding over $1.4 million through an advance commission scheme. Eric Lee, 64, Brea, is charged with 10 felony counts each of grand theft and insurance fraud with sentencing enhancement allegations over $100,000, statute of limitation tolled, aggravated white collar crime over $500,000 and property damage over $1.3 million. If convicted, he faces a maximum sentence of 28 years and eight months in state prison. The People will request he be held on $1.4 million bail and must prove the money is from a legal and legitimate source before posting bond at his arraignment today at 10:00 a.m. in Department CJ-1, Central Jail, Santa Ana.

At the time of the crime, Lee worked as an insurance agent for FMC Financial Group (FMC), a general agency for the insurance company Mass Mutual from October 2009 to November 2010. Between May 2010 and October 2010, Lee is accused of selling universal life insurance policies, in excess of one year, to new clients and fraudulently completing their insurance policy applications.

Lee is accused of illegally engaging in a practice known in the insurance industry as an advance commission scheme. An advance commission scheme occurs when insurance carriers offer a commission in excess of an annual premium that is paid up front. Agents sell policies with the intent of allowing them to expire after one year while keeping the excess of the annual premium/commission as a profit. This profit to the agent is a loss to the insurance company.

Lee is accused of illegally overstating the annual income, net worth, and the source of the applicants’ income on insurance applications in order for life insurance policies to be issued by Mass Mutual. He is accused of advising policy holders they would be receiving free insurance and writing them a personal check to pay for their first month’s premiums on the policy.

Insurance agents make their money from first year commissions (FYC) on the sale of new policies, renewal commissions, and service fees on policies which have been on the books beyond the first year. If an agent works for an established agency, they will get paid a percentage of the total FYC. The FYC is a calculation based on the first year premium that is due to the insurance company. The total FYC paid to an agent could be anywhere between 50 percent to 130 percent based on the insurance companies the agency represents and what type of policy sold.

Once the policy, was placed Mass Mutual would pay the advance commissions to the FMC General Agent (GA) who had the discretion on how to distribute the commissions. The commission amount Mass Mutual would advance was based on the policy being in force for one calendar year. The GA would annualize the commissions to the agent instead of paying commissions monthly as long as the policy was in force. For each policy placed, the GA and manager each received a percentage.

Lee is accused of receiving the remainder of the percentage from the commission.  If a policy lapsed before the first year was complete, the agent was required to pay back the pro-rated portion (charge back) of the commission. Mass Mutual paid one year’s commission in advance once the policy holders’ insurance coverage was approved and in place. Lee is accused of committing an advance commission scheme by collecting more than $1.4 million on unearned commissions after the insurance policy would lapse after one year due to no future payments being made on the premiums.

Mass Mutual conducted an audit of the policies and discovered a large volume of lapsed policies and contacted the California Department of Insurance, who investigated this case.

Senior Deputy District Attorney Marc Labreche of the Major Fraud Unit is prosecuting this case.

Orange County District Attorney / Case# 14CF3329 / October 06, 2014

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