State lawsuit accuses estate-planning company of being a deceptive "Trust Mill"
The Washington state Attorney General's office filed a consumer protection lawsuit Thursday against a company that promotes estate planning seminars in Washington.
Investigators allege the "free lunch" seminars were used to ultimately sell complicated investments, and cash in on commissions.
The lawsuit filed in King County Superior Court names CLA Estate Services, Inc., CLA USA Inc., and Mitchell Reed Johnson, one of CLA'S independent sales contractors as defendants.
Dorothy and Mike Clawson of Battle Ground, Washington say they attended one of CLA's seminars 5 years ago.
"It was a seminar on how to make a trust. Then they offered the free dinner," Dorothy explained. "We liked the idea of the trust."
Dorothy says once she and her husband paid to set up an estate trust- a salesman set up an in-home appointment.
"The fella that came, his name was Mitchell Johnson," she said.
But Dorothy says instead of just talking about her trust, Mitchell Johnson convinced her that she'd make more money for her retirement by transferring the retirement savings he'd invested with her financial advisor- into annuities- insurance investments that came with penaities for withdrawing money, and high fees she says were never explained.
Dorothy said she transferred 3 retirement savings accounts worth about $180,000 to annuities sold to her by Johnson.
"I haven't made a dime in my annuities. Not a dime." Dorothy said she had to pay a 10 percent penalty when needed $14,000, and later learned the 10 year annuities included fees that wiped out any earnings she expected to make. She said she's lost thousands.
"She's one example of many examples." said state Attorney General Bob Ferguson.
According to Ferguson, Dorothy Clawson and many other Washington seniors were victims of a what the state's lawsuits calls a "Trust Mill" that used trust seminars to later sell lucrative insurance products.
"So this was a business model for CLA" said Ferguson. "Mr. Johnson's an egregious example of the conduct that was going on."
According to the Attorney General's release announcing the court action, CLA sold 1,200 Lifetime Estate Plans in Washington alone, earning CLA more than $2.6 million in commissions.
By contrast, investigators say the company sold more than 700 annuities and earned more than $4.5 million in commissions and more than $930,000 of that was from commissions on Johnson's sales alone.
Ferguson says in Johnson's role as one of CLA's top insurance sales contractors, Johnson earned more than $278,000 in commissions from sales to consumers in Washington state.
Dorothy Clawson told state investigators that in addition to not telling her about fees and penalties that ate up much of her money, Mitchell Johnson falsified documents after she and her husband signed the forms. The allegations are also part of the state's case.
"He had my husband and I both working at the railroad, which we had never worked a day at the railroad. But we didn't see that paper work until much later," Clawson said.
The state's lawsuit aims to stop alleged deceptive practices and get compensation for Dorothy Clawson and other customers in Washington state.
CLA denies wrong doing. Their attorney in Seattle, Brian Moran of the Orrick law firm, sent the following statement to KOMO News in response to the state's allegations:
“We are disappointed both that the Washington Attorney General decided to bring an action against CLA Estate Services, Inc., and CLA USA, Inc., and issued a one-sided press release about their, as yet, unproven case.
The CLA companies are long-standing and legitimate businesses, who care about their customers, have done so for many years and plan to do so for many more. CLA Estate Services has helped many customers implement their estate planning, often for the first time, after the customer consults an independent, experienced attorney in Washington for their legal estate planning needs. CLA customers have the peace of mind knowing that they have a valid, legal estate plan in place to handle their affairs upon incapacitation or death.
CLA has always been transparent that it will offer its customers insurance products to meet their financial goals. CLA USA only offers insurance products that have been authorized and approved by the Washington Office of the Insurance Commissioner. CLA USA stands by the products we offer as providing a conservative financial planning strategy.
CLA strives diligently to ensure their customers are satisfied with the services and financial products it provides to its customers and will work with any customer to resolve any issues or concerns. This commitment to our customer satisfaction is evident by CLA’s A+ Rating with the BBB.
The CLA companies have fully cooperated with the Attorney General’s office and provided independent analyses from Washington state experts in probate and trust law to demonstrate that CLA is not a trust mill, does not provide legal advice, and does not sell living trusts, but rather provides valuable services to clients. It is unfortunate the Attorney General decided to ignore these experts and other relevant information in bringing this action.
CLA will hold the AG’s office to their burden of proof and seek the appropriate reimbursement for the defense of this action on behalf of their client’s interests.”
Brian T. Moran, Of Counsel
KOMO news also reached out to defendant Mitchell Johnson, both by email and telephone, shortly after the suit was filed Thursday morning. As of the time of publication, Johnson has not replied.
State records show Johnson has pending hearings with two other state agencies, the Office of the Insurance Commissioner and the state Department of Financial Institutions, dealing with alleged violations of state insurance and securities laws.