Investors took out life insurance on stranger and got millions when she died, suit says

The estate of a Delaware woman is suing after it says a group of investors took out a life insurance policy on her.

The lawsuit, filed April 26 in Delaware Chancery Court, was filed against Wilmington Savings Fund Society Fsb, Wells Fargo Delaware Trust Company, N.A., Wells Fargo Bank, N.A., Apollo Global Management, Inc., Apollo Asset Management, Inc., Apollo Capital Management, L.P., and Financial Credit Investment I Manager, LLC.

According to the complaint, the group of “stranger-originated life insurance (“STOLI”) investors” took out a $5 million life insurance policy on Martha Barotz in 2006. The lawsuit claims the STOLI investors “prey on the lives of senior citizens.”

The investors created the STOLI policies to sell them to other investors who would “securitize large portfolios of human life wagering policies,” the lawsuit said.

Barotz was retired in her early 70s when she was persuaded into allowing Life Accumulation Trust III (“LATIII”) to take out an insurance policy on her, according to the lawsuit. The complaint said that LATIII procured the policy “through an egregious STOLI scheme.”

“An illegal STOLI scheme that created life insurance policies lacking insurable interest and that were nothing more than wagers on the lives of senior citizens,” the lawsuit said.

Barotz was directed to create a trust, which was then used by LATIII to “apply for, purchase, hold, and/or transfer” a life insurance policy, the lawsuit said. LATIII was the holder of the trust and paid for the premiums of the policy, and in return would receive the payout. Barotz was told she would receive 3% of the death benefits, the court document said.

“The Barotz Trust was created and funded by LATIII as a mere cover for an illegal wager on the life of Mrs. Barotz,” according to the complaint.

In September 2006, the $5 million policy was issued to the Barotz Trust, in the care of the Wilmington Savings Fund Society FSB (WSFS).

“WSFS (and its predecessor in interest, Christiana Bank) was fully aware of these facts and that it was facilitating a fraudulent and illegal human life wager, yet WSFS concealed the truth, acted to mislead the insurance carrier that issued the Policy, worked secretly on behalf of stranger investors to perpetuate the wager and ultimately collect the death benefit,” the lawsuit said.

In April 2011, LATIII sold its beneficial interest in the insurance policy to Financial Credit Investment I Trust C-3, the lawsuit said. According to the complaint, Apollo Global Management was the controlling entity over the other investors.

Barotz passed away on Dec. 22, 2018. In February 2019, “Apollo, acting through Trust C-3 and WF Bank, directed WSFS, as Trustee of the Barotz Trust, to submit a death benefit claim to PHL Variable Life Insurance Company, which claim was paid to WSFS in the amount of $5,042,328.77 on April 4, 2019,” the lawsuit said.

“We believe these claims are baseless. While we generally refrain from commenting on ongoing litigation, we want to be clear that Financial Credit Investment I, a fund previously managed by our affiliates, never participated in the origination of any life insurance policy,” a spokesperson from Apollo Global Management told McClatchy News in a statement.

McClatchy News reached out to Wilmington Savings Fund Society Fsb and Wells Fargo Bank for comment but did not immediately hear back. Contact information for Wells Fargo Delaware Trust Company, N.A., Apollo Asset Management, Inc., Apollo Capital Management, L.P., and Financial Credit Investment I Manager, LLC was unavailable.

On Jan. 8, the Delaware Superior Court ordered the Barotz Trust to pay $6.9 million to Barotz’s estate. The Barotz Trust did not appeal the judgment but has not paid because it says it has no assets, according to the lawsuit.

The lawsuit is asking a judge to void any transfers of the policy’s death benefits, declare that the Barotz Trust is invalid, and order it be dissolved and uphold the prior judgment by the Superior Court.

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