The first serious challenge to Richard Schwartz and his professional dealings was filed just weeks ago. David M. Krieg of Scottsdale, Ariz., is suing the businessman, his wife, and the insurance company that they represented in federal court.
The case, which seeks unspecified damages in excess of $75,000 was filed on April 8 in Maricopa County, and the allegations made by Krieg are significant. He accuses Schwartz and his wife, Brielle, of negligent misrepresentation, violation of consumer protection laws, and fraud. New York Life Insurance Co. and its subsidiaries are sued for negligence in the case.
Krieg alleges that in early 2011, he was approached by Schwartz about purchasing a $14 million universal life insurance policy, claiming that New York Life would discontinue selling this particular policy in April 2011. The policy’s initial premium payment was $320,000, but would fall to $10,000 per year after the first year.
In order to pay for the policy, Schwartz allegedly suggested that Krieg liquidate two other insurance policies. This is known as “churning, twisting, piggybacking,” according to the complaint. Schwartz went further by claiming that New York Life would refund nearly half of the first year’s premium by the end of the year. This rebate allegedly would violate Arizona law, according to the complaint.
Schwartz continued to sweeten the pot by taking Krieg to the Kentucky Derby -- all expenses paid. That was enough to convince Krieg to sign an application for the policy.
Almost immediately, a red flag was raised. After returning from the horse races, Krieg contacted his financial advisor and asked him to contact Schwartz concerning the policy. That was just prior to April 30, 2011. After two emails, Brielle finally replied on June 28, stating “Yes, Dave and I spoke today about the issuance of a NYL policy. I’m getting on a flight right now back to IN and will call you first thing tomorrow to discuss. We are very excited about these options for Dave, however we do need to review his existing policies asap.”
What Krieg and his advisor did not know was that New York Life issued the insurance policy on June 13. Even more mysterious, a $26,592.50 premium payment was remitted to the insurance company on June 30, but it didn’t come from Krieg.
On July 11, 2011, Brielle contacted Krieg’s financial advisor, claiming that she and Schwartz were “creating a policy which would be structured to meet (Krieg’s) needs.” As such, she requested that Krieg allow them to see his investment portfolio and insurance policies.
On July 30, another premium payment was made on the $14 million policy, and still Krieg claimed he did not know of its existence.
On Aug. 26, 2011, Krieg was finally notified of the insurance policy and was sent papers to sign in order to authorize its purchase. On Aug. 30, another premium payment was made; this time, from Krieg’s bank account. Brielle sent Krieg’s advisor a copy of the policy on Sept. 17, and “advised him that it was ‘a work in progress,’ which required (Krieg’s) input and Defendant Schwartz’s expertise, and may ‘require changes in face value and death benefit.’”
On Oct. 26, another strange event occurred. Two of Krieg’s existing life insurance policies were liquidated, allegedly without his consent. Schwartz did so in order to pay the premium on the New York Life policy, the suit claims. However, Schwartz did not complete the required IRS exchange form.
In January 2012, Krieg realized that the $26,000 premium payments continued to be drafted out of his account, despite his belief that the first year’s premiums should have been paid with the insurance policy liquidations. He instructed his financial advisor to stop further payment.
Yet another mystery presented itself in February when a $30,000 loan was taken out against the $14 million policy without Krieg’s knowledge or consent.
Schwartz was terminated from New York Life in March 2012. He became an agent of AXA Equitable and immediately attempted to convince Krieg to purchase yet another life insurance policy -- this time for $9 million. Unaware that Schwartz had separated with New York Life, he agreed to apply for the policy.
It was then that New York Life contacted Krieg, hoping to retain his policy. Kreig asked for a copy of the policy which he still had not received, allegedly.
“Upon later receiving a copy of the Policy Illustration, which failed to include a copy of the signed Illustration, Plaintiff discovered that he had been issued a $14 million UL Policy, with annual premiums of $320,000.00 for the life of the Policy,” the complaint reads.
Krieg is claiming losses of his previous insurance policies, the premium payments on the New York Life policy, penalties, surrender charges, and taxes accrued through the transaction. He seeks damages in that amount along with a rescission of the New York Life policy and reinstatement of his previous policies.