2014 0415 – DOC 808 – Trial Transcript – Day 5 – Walker v LSW – 229p

2014 0415 - DOC 808 - Trial Transcript - Walker v LSW - 229p

Brockett
Spooner (p69)

(p7) - Brockett

Q Now, that assumption underlying this diagram that the S&P 500 had zero returns for 20 some odd years in a row is also the assumption underlying the guaranteed column in the illustration; is that true?
A Yes, that's true.
Q And so the assumption you made in this diagram is exactly tracking the assumption in the illustration?

A Yes. It's actually the same as in the illustration.
Q So the guaranteed values column is also statistically impossible?
A Yes. The guaranteed is statistically impossible.

(p14)

BY MR. BROSNAHAN:
Q Are there other cash value policies out there in the marketplace such as traditional universal life and whole life?
A Yes, there are.
Q Do they have volatility?
A No, they do not.

(p19)

Q Your analysis demonstrated that when volatility is introduced, there is a higher risk of lapse versus what is shown in the illustration without volatility; is that right?
MR. MARTENS: Objection, Your Honor. Foundation
for that.
THE COURT: Overruled.
THE WITNESS: Yes. With volatility there is a higher chance of lapse.
MR. MARTENS: Objection to the answer. It wasn't so limited as the question.
MR. BROSNAHAN: That's the essence of his analysis. He testified about it at length.

(p20) - A All premium payments are made on time.

(p20-21)

Q Now, going back to the question of whether, if a
person was interested solely in the death benefit, the
Paragon or Provider would be a good policy for them.
MR. BROSNAHAN: I have the report here, Your
Honor. I would be happy to --
THE COURT: So do I. Just cite me to the section.

MR. MARTENS: I was going to say I didn't see
anything about that in what I was looking at. The reply
report, paragraph 73?
MR. BROSNAHAN: Yes -- 73, and 115 and 116.

MR. BROSNAHAN: The reply report on the merits of
Dr. Brockett. It was filed, I believe, January 31st --
28th.

(p22)

Q Now, my question again is: If a person were interested solely in the death benefit, would the Paragon or Provider policy be a good choice for them.
MR. MARTENS: It doesn't say solely in the report,
Your Honor. Objection.
THE COURT: Overruled.
THE WITNESS: No. If they were interested solely in the death benefit, then they would not choose the IUL policy as the actuary that designed it for LSW said.
MR. MARTENS: Objection. Move to strike.
MR. BROSNAHAN: This is the basis for the opinion.
THE COURT: Overruled.
THE WITNESS: The actuary, LSW actuary, Mr. Tivilini, said if a consumer is interested in purchasing a purely death benefit without any cash value accumulation, then obviously an IUL policy doesn't make any sense for them.

(p29-30)

Q When you were offering that statement, you don't
actually know what the NAIC regulations require or preclude in terms of what could be disclosed; do you?
MR. BROSNAHAN: Objection, Your Honor, as to what
the NAIC --
THE COURT: Overruled.
THE WITNESS: I don't know what the NAIC says in

(p45)

A The actual price versus the price as it actually would perform in the market.
Q When you say the price as they would actually perform in the market, you refer to that in your report as actual market or market value; correct?
A Correct.
Q Meaning the price that the product would have commanded in an open mark under conditions of full disclosure; correct?
A Correct.
Q That's what you mean when you use the phrase market value; correct?

(p65)

Q So you told the jury on Friday that they were getting
pretty shaky; didn't you?
A Correct.
Q And that was false testimony to this jury; correct?
A It was certainly misleading.

(p66)

A The assumption is that the information is fully reflected in the prices. That's what the efficient market's hypothesis is.
Q I understand. The efficient market hypothesis says if
a market for a product is efficient, the price will move and incorporate the information; correct?
A Yes.

START - Spooner

(p73) - Spooner

A They went through this series of showing us all the
traditional retirement accounts and then presented this
private retirement account notion where you could take the equity in your home or your property and use it to set up these accounts where you could take tax-free retirement income later in your retirement years.

(p74-75)

Q And what were you looking for in a retirement plan?
A Well, we wanted something that was relatively safe and secure since we were getting a little bit older and didn't want to make any big mistakes that we couldn't make up for.

(p75)

Q And Exhibit 632, the total wealth management/wealth transformation strategy, is that the plan that was presented to you?
A Yes, it is.

(p77)

Q And what would be in the private retirement account?
A At the time he called it an IGLI, investment grade life
insurance policy. So the notion was it was a life insurance policy that we would fund.

(p81)

Q So you're referring to question 14: Identify the source of funds for premium payments, e.g., redemption of financial product, income or savings, home equity loan, payment by third party. And it's written other investments?
A Correct.
Q And whose handwriting is that on other investments?

Q Did you review what Mr. Cooper wrote down before you signed the application?
A No. We didn't really review is it. It was -- since we were dictating it to him, we just assumed he marked what we said.

(p86)

Q Did you expect to get the approximately 9.6 interest rate shown in the current basis B values each and every year?
A No, not each and every year. That was just the average over time.
Q What did you expect that you would get?
A The expectation was we would get whatever the performance was that year, applying the caps and participation rate with at least the two and a half percent minimum. So that calculation would be applied to the policy on a yearly basis.
Q What was your expectation over time as to what you would receive?
A The expectation was that we would get something very close to this, maybe a little bit more and maybe a little bit less, but certainly close to these numbers.

(p88)

Q And what did you think about the tax-free income potential of this policy?
A Well, that was the primary reason why we purchased the policy, to have that tax-free income.

(p89) - Duty to Read

Q Did you read any of those documents that you received from Mr. Cooper at that time?
A No, I didn't at that time.
Q And why didn't you read them?
A Well, we had spent a considerable amount of time on the July 27th illustration and thought that that was representing what we were getting. So we thought that what we got reflected what was in the July 27th illustration.

(p91)

A So we attended the course. The course was given
by a company called Pure Financial. They were offering to the students -- we called ourselves students -- of this class that they would analyze our retirement plan and present us with some options. So we did sign up to do that. We met later with Mr. Dugan, who was one of the teachers of the class..

Q And did Mr. Dugan provide you a second opinion as to your LSW policy?
A He did. He looked at the policy, and in his opinion he
thought it wasn't really going to perform the way it was
illustrated and that we might not be likely to get some
retirement income from this policy.

(p92) - Commissions

THE WITNESS: He gave us an estimate on my husband's policy and that he calculated he probably received around $45,000 commission on that policy.

(p96)

A After reviewing it many times, we decided to surrender the policies.
Q So you sent surrender notices in in September of 2008 to LSW?
A Yes, that's correct.
Q And your husband did also?
A Yes. We both sent in a surrender.
Q What happened after the surrender notices were sent to LSW in September 2008?
A Well, Mr. Cooper gave us a call a couple of days after we sent in the surrender and wanted to find out what our concerns were, asked us to put the surrenders on hold so that he would work with us and see if he could alleviate our concerns.
Q And did you agree to have the surrenders put on hold?
A We did.