Insurance agent scams are unfortunate but do occur. Life insurance agent Eric Lee, 64, of California was arrested by investigators from the California Department of Insurance and Orange County law enforcement for scamming $1.4 million in fraudulent advance commission scheme in 2010.
Lee worked at a general agency FMC Financial Group selling Mass Mutual life insurance. He falsified applications by inflating a proposed insured’s annual income and net worth to qualify them for higher coverage amounts and be issued.
He then completed the applications himself, allowing the policies to lapse before the first year in force keeping a leftover portion of the commission advanced to him by Mass Mutual based on the inflated policy’s annual premium amount.
“The defendant advised policy holders that they would be receiving free insurance and wrote them a personal check to pay for their first month’s premiums on the policy,” per an article by attorney Tracy Green from Green and Associates website.
The scheme came into play when Lee let the policies lapse and returned a portion of the commission received as unclaimed annual premium to the insurance company, which is customary in insurance policy sales. The leftover advanced commission was just icing on the cake multiple times to the tune of $1.4 million dollars. And the insurance company took the hit on the lost revenue of the unrealized annual premium of the forfeited fraudulent policies.
agent practice. and keeping the advanced commission left over after the annual premium amount lost was deducted, which is customary when a life insurance policy lapses.
Lee kept the excess commission money and the insurance company took a hit on extending the commission because the annual premium was never realized.
The Department of Insurance began its investigation of Lee in January 2011 after an audit revealed many of Lee’s policies failed to have any premium payments after the first policy year.
As a result of Lee’s scheme, he received $1,403,897 in fraudulently obtained commission payments between October 2009 and October 2010. He was charged with 20 felony counts, including grand theft and allegedly providing false or misleading information to an insurer, per a press release by the California Department of Insurance.
“It’s unfortunate that there are dishonest agents that violate their fiduciary responsibilities,” Insurance Commissioner Dave Jones said. “The Department of Insurance regulates more than 360,000 licensed agents and brokers who work hard to be professional and honest in their business practices.”
Lee is being prosecuted by the Orange County District Attorney’s Office with bail set at $1,403,897 and is required to show that bail funds are not from money obtained through his scheme. Lee is scheduled to appear in court today for his arraignment.