TBJ file photo
Derrell Ferguson is no gambler. Now in his 70s, Ferguson ran an auto shop in Terrell, Texas, for years. He worked hard for every penny, and when he lost money on the stock exchange he started to look for safer ways to invest the retirement savings he had left.
His adviser recommended a seven-year annuity at 4.3 percent interest. The money “would just sit there,” Ferguson recalls.
He funneled in $240,000 in 2018, “almost all I had,” investing in an annuity held by a company called Colorado Bankers.
Ferguson had never heard of Greg Lindberg, the North Carolina man at the reins of Colorado Bankers and multiple other insurance companies under the Eli Global umbrella. When Lindberg was arrested and later convicted in a political bribery scandal, Ferguson still didn’t know his name.
It wasn’t until his wife became bedridden and he tried to pull out his cash to pay medical bills that the name Lindberg entered his world.
“They wouldn’t give it to me,” he said of his life savings. “Because of some guy in jail.”
Phyllis and Les Christos had also never heard of Lindberg when they, through Rhode Island–based Citizens Bank (NYSE: CFG), invested more than $400,000 of their savings into an annuity. They claim they were told their money would be safe – covered by the state’s guaranty association that protects policyholders. But when Lindberg’s headlines hit and they asked regulators, they were told that if the companies go under, just $250,000 of their savings will be protected.
“It’s just sickening,” said Les Christos, a retired city worker for Boston, who used savings and the proceeds from an inherited real estate sale to invest. “There’s no way we’ll be able to save this much money.”
“It’s a lot of money for somebody like us,” Phyllis Christos said. “We are just regular people who have been working our whole lives.”
Citizens Bank, which sold several annuities tied to Lindberg, did not comment for this story.
But the reality is that three years after regulators took over Lindberg’s companies, policyholders are no closer to seeing a dime of their retirements – and they’re tired of waiting. Regulators blame Lindberg and have filed multiple lawsuits. Lindberg blames regulators, his attorneys claiming the companies could be out of debt in less than 12 months if only their client can keep control.
But as the situation plays out in multiple courtrooms, policy-surrender periods are ending. And clients across the country counting on that money to retire are kept waiting as Lindberg serves a prison sentence in Alabama.
Lindberg founded Eli Global, currently called Global Growth Holdings, in Durham in 1991. And over the years, he began collecting insurance companies under the Eli Global umbrella, building a fortune as he went – from a mansion at Raleigh’s Falls Lake to a luxury yacht called the “Double Down.”
The native Californian, once one of North Carolina’s leading Republican donors, called himself a “contrarian.” In an interview in 2018, he said he built a company of “scrappy, self-aware leaders who think long-term and are fearless of failure.”
Lindberg would stress the firm’s humble roots repeatedly — both in his frequent leadership blogs and on the Global Growth website, how Eli Global started as a one-room business with eight employees. He would later write that it began with a “folding table and $5,000.” Over the years, it would become an empire, a portfolio of more than 100 companies and 8,000 employees across 16 countries.
But it’s the insurance firms he started to collect that would threaten to bring that growth to a screeching halt. Specifically, it’s the funds from those companies and Lindberg’s practice of investing the cash into other businesses. It’s a common practice, and how insurance firms make their money. But typically, insurance firms are prohibited from investing more than 10 percent of those assets – a regulatory stopgap meant to protect policyholders.
Lindberg, however, found a loophole in North Carolina that, for a while, allowed him to invest well past that cap, more than 60 percent in the case of Southland National Insurance Corp.
Sentiment shifted, however, with the new insurance commissioner.
Fresh on the job in 2017, N.C. Department of Insurance (NCDOI) Commissioner Mike Causey discovered what was happening and, according to interviews and trial testimony, began investigating the practice. Lindberg, the Federal Bureau of Investigation claimed during his 2020 criminal trial, tried to bribe Causey to his way of thinking with campaign contributions. But instead of going along with the plan, Causey wore a wire and worked with the FBI as it built its case against Lindberg.
In the years since the case was made public, the state changed its policy, meaning companies can no longer exceed that 10 percent cap. But for Colorado Bankers and Southland National, the damage was already done. The insurance firms were deemed insolvent and put under the purview of Causey and the commission.
As they worked to right the ship, they froze payouts — cutting off policyholders’ access to most funds.
But it’s not an easy switch to turn back on, as regulators have said repeatedly in filings that without the money Lindberg purportedly invested into other firms, the companies will remain insolvent.
Ferguson and the Christos couple didn’t know the details – nor do they care about the minutiae of insurance law.
“We just want our money,” Phyllis Christos said.
She’s not alone.
Filings in civil litigation against Lindberg and his companies estimate more than $1 billion in insurance assets was invested in Lindberg’s other companies –amounting to a ton of policyholder money.
What happens to the money
There are options – but none are easy or fast.
Justin Holbrook, CEO of Global Growth, said rehabilitating the insurance companies is currently the firm’s top priority.
“In 2022, Global Growth’s highest strategic priority is to help our policyholders access their benefits this year by working with the North Carolina Department of Insurance to immediately rehabilitate the North Carolina insurance companies. Global Growth looks forward to making that roadmap public in the near future, so we can bring this matter to a quick and decisive conclusion,” Holbrook said.
Meanwhile, if the courts move toward liquidating Lindberg’s insurance companies, the state’s guarantee association would kick in and distribute at least a part of the invested dollars to annuity holders.
Every state has what’s called a “guaranty association,” which, in the states of Texas and Massachusetts, insures up to $250,000 in cases of annuities – meaning Ferguson would be fully protected. But Les and Phyllis Christo invested over that cap – based, they say, on bad advice. Liquidating may be the only way Ferguson would get his money back any time soon – but it would also likely put nearly half of the Christos’ savings out of reach forever.
But guaranty associations only come into play in cases of liquidation. And that hasn’t happened, as the companies are embroiled in several lawsuits. Instead, the firms are inching along in what’s called rehabilitation, similar to a Chapter 11 bankruptcy. The companies, including Colorado Bankers, have been under the purview of the NCDOI, thousands of miles away from many policyholders, for three years.
Bill O’Sullivan, senior vice president and general counsel for the National Organization of Life & Health Insurance Guaranty Associations, explains guaranty associations as entities formed under state law “for the purpose of protecting policyholders when an insurance company fails and can’t meet its obligations.”
But to “fail,” a company has to be declared insolvent in court. A judge has to place it under what’s called “liquidation.” Without that trigger, guaranty associations are not statutorily obligated to sweep in, leaving policies in limbo.
Add in that moratorium order in the case of Lindberg’s companies that prohibits policyholders from surrendering their contracts or seeking cash withdrawals except for certain situations while under rehabilitation. And it’s a problem.
“We’ve spoken to some policyholders,” O’Sullivan said. “In these types of situations … historically people have some concerns.”
Policyholders aren’t the only ones feeling the sting.
Brokers see their businesses ruined
Max McMullen, who owned Alabama insurance seller Benefits for America, saw his retirement dissipate completely. He estimates Colorado Bankers owes him in excess of $300,000 in unpaid commissions. His clients came out more favorably, as most just had thousands of dollars in specialized life insurance policies, and much of that money was released.
But McMullen has had to add side hustles such as a startup call center to keep cash coming, as about 90 percent of his business used to be with Colorado Bankers.
“I never thought in my early 60s I would be starting over from scratch,” McMullen said. “We have not made it back to where we were before, but we’re trying.”
Ted Vahovius owns Medicare Supplements Plus, the Texas firm that sold Ferguson and many others, the policies. He said the reputation hit has been devastating. His firm does not advertise, instead relying on word-of-mouth referrals, and clients are angry.
“I have been servicing the state of Alabama employees for 27 years and this has really put a dent, a blemish on my record,” he said.
“It’s disheartening that the Department of Insurance is taking this long to free up small amounts of money. … This isn’t really a lot of money.”
Vahovius, who said a “significant amount” of his retirement is also wrapped up in frozen annuities, said NCDOI needs to just “rip off the Band-Aid” and liquidate so policyholders are protected.
“Their money is being taken hostage,” he said. “What do you tell these people?”
Regulators have few options
NCDOI says its hands are tied.
Barry Smith, assistant director of public affairs, said that a court order bars it from making cash surrenders, transfers and loans.
While annuity holders reaching full maturity are being paid, the minutiae of how the policies work prevents people like Ferguson from getting payouts – even when their so-called surrender-charge period ends, which, for many policyholders, is this summer.
“While some CBL annuities are approaching or have reached the end of their surrender-charge periods, this does not mean they are reaching maturity,” he explains.
“The maturity date of an annuity is different from the end of the surrender-charge period. The maturity date is normally the contract anniversary date in the year following the date that the annuitant reaches maturity age, which is typically age 95.
The surrender-charge period is the timeframe during which the owner cannot withdraw funds without incurring a surrender charge. The surrender-charge period is typically three to seven years after purchase of the annuity.
At the end of that surrender period, the guaranteed interest crediting rates drop from a range of 2.5 percent to 4.1 percent all the way down to 1 percent to 1.65 percent.
Smith said there’s a hardship process, but that it is “not designed to allow unrestricted access to funds.”
Clients say the agency has been slow to return their calls, and also slow to return money that is actually due even under rehabilitation – such as life insurance payouts. In one case, a family had to borrow money from a funeral home, and instead of taking days to get their money, it took three months.
Smith doesn’t comment on individual situations.
The problem is widespread, as policies held under the rehabilitation order were sold across the nation.
“This is going to destroy an industry,” theorizes Chet Vahovius, Ted Vahovius’ son who also works at the Texas firm that sold Ferguson his policy.
“There are not a lot of places our seniors can go to invest… The inability of the system to deal with this company is a disaster. In very short order, a bunch of these contracts are going to come due… and if they don’t fix this company, these people will not get their money and their money will be trapped at a very minimal interest rate.”
Chet Vahovius fears that, if people know a state’s insurance regulator could “trap” their money for just a 1 percent interest rate after their maturity date, brokers like him would not be able to sell future policies. “Death is the only way out of this product,” he said.
But the calls keep coming – like the 85-year-old planning on what to do with his money when it matures in July, and the 70-something whose wife just died.
With the bulk of the policies Vahovius sold set to reach their surrender-charge periods in the next year, the calls will likely increase, he said.
Charles Matter, 87, sees his policy mature in June. He said he was counting on his insurance agent to “work it out,” but there is nothing that agent, Ted Vahovius can do, as Matter’s money – like those of many others – is being held pending the rehabilitation.
“We can’t do anything about it,” Matter said. “We’re just plain-old people.”
He declines further comment.
While Commissioner Causey was not made available for this story, he did say in 2019 that policyholders will be protected — though he did not give a timeline.
He pointed to the state’s insurance guaranty fund that protects policyholders up to $300,000 in North Carolina.
“For those people who may have more than $300,000… I would just say, don’t worry – don’t panic,” he said then.
“Let’s let things play out. This is a long-term process and we’re doing everything we can to make sure that the policy holders are well-protected.”
But three years later, that long-term process is starting to grate on policyholders who are still waiting.
For those who invested several hundreds of thousands of dollars into the annuity policies, litigation, like the case currently working its way through Wake County Superior Court may be their only chance at recouping their investments.
But even a victory may not fully compensate policyholders if the money isn’t there.
Victory for plaintiffs
Plaintiffs got a big win in May when North Carolina Superior Court Judge Graham Shirley ruled that Lindberg should relinquish control of the insurance firms to an independent panel, which could then sell off the assets to pay back policyholders.
But Lindberg’s attorneys have pushed back. Within days of the order, they filed a motion to stay its enforcement — which was promptly denied.
Attorney Aaron Tobin said Lindberg plans to appeal — a delaying tactic, Wes Camden, the Williams Mullen attorney representing the insurance companies has said.
Camden and other attorneys have accused Lindberg of flat-out stealing policyholder money.
After filing an additional lawsuit over millions in tax refunds he claims are owed to the insurance companies, Camden said, “We have a name for when you take someone else’s money and won’t pay it back: stealing.”
Lindberg attorneys characterize it differently in their statements, filings and arguments.
In court May 26, Tobin told the judge that, if Lindberg could keep control of the companies, they could be solvent as early as next year — something Camden said he has seen no evidence to support.
In an email, Tobin said the rehabilitators “have been in place for three years and have not proposed a single transaction to benefit the policyholders.”
“Instead they have filed over 30 lawsuits and paid themselves and their lawyers millions of policyholder dollars,” Tobin said.
Companies under Lindberg have paid insurers more than $370 million over that time period, he said.
In court, Camden said Lindberg’s team should not get credit for paying down debts they purportedly created. “It’s not a hero’s tale to pay your loan back,” Camden told the court in a hearing May 26 in Wake County.
Colorado Bankers status
Colorado Bankers is one of multiple Lindberg affiliated insurance firms deemed insolvent and placed under rehabilitation in 2019.
Southland National Insurance Corp., Bankers Life Insurance Co., Colorado Bankers Life Insurance Co. and Southland National Reinsurance Corp. are all under the state-ordered rehabilitation, and filling show little improvement.
The last quarterly report, published in May for the December quarter, shows that Southland National Insurance alone had $173.9 million in “affiliated investments,” or 67 percent of its assets.
Colorado Bankers had $961 million in affiliated investments, 40 percent of its assets. That’s all money unavailable to policyholders.
In the meantime, all policyholders can do is wait.
Ferguson said he never expected to struggle to pay bills at age 76 after a lifetime of saving his dollars.
But he’s a realist.
“There’s a good possibility that you’re going to lose (the invested dollars),” Ferguson said to himself.
“If you don’t lose, you may die before you lose… If I die, my wife can go ahead and get what’s there without penalty. But not unless I die.”
In the Boston suburbs, Les Christos isn’t sure what happens next. “I can’t even drive by Citizens without feeling sick,” he said.