Now that the dust has settled, there are two things everyone agrees on in the fraud case of San Diego-based insurance agent Shawn Heffernan; the first is that everyone who worked with him as his client initially thought he was their best friend. Then came the second revelation after all of the money they had given him seemed to have evaporated into thin air: that any punishment they gave him would not have been enough. As it now stands, what the law has given him is nine years behind bars.
Shawn Heffernan has been convicted of stealing $1.5 million from his former clients in a Ponzi scheme, in what is also known in insurance circles as “churning.”
Shawn Heffernan Churning: Little by Little
Heffernan wasn’t so much as greedy as he was calculating. His “marks” were senior citizens who maybe were in need of a little friendship and when he met with them, he promised to take their savings, manage their money, and turn their modest bank accounts into small gold mines. He told them the way he would build their wealth would be through low-risk annuities and similar financial instruments. He worked slowly and systematically. However instead of reinvesting their money, he bought himself a luxury car, jewelry, vacations, golf outings and a beautiful wedding. I am sure his wife flips through the wedding photographs every time she prepares to visit him in jail!
The defrauded senior citizens tried to regain some of their lost funds. What they found was not pretty. The $1.5 million had become $80,000 in a bank account and three condominiums that were mortgaged to the hilt. Given the current San Diego market, and the size of the mortgages, the defrauded clients will make pennies – if that.
San Diego Superior Court Judge Howard Shore said before the sentencing that Heffernan’s actions were, “…a case study in predatory behavior,” and “an intentional act of thievery.”
Careful Cultivation
Some of those Heffernan fleeced were cultivated by him as far back as 2005 at an investment seminar. After Heffernan ingratiated himself with one potential “client,” Heffernan told the client he would put the client’s money into an annuity plan. It sounded legitimate enough, then Heffernan added that he would advise the client when to change annuity plans to get even better rates. He advised the client that he would do this frequently. It should have raised a red flag, but still it was somewhat reasonable.
What the client didn’t realize were how all of the penalties for cancellations were adding up. As Heffernan was the one who was buying and selling the annuities he got all the commissions, the client got relatively nothing. From the one client the commissions totaled $260,000. It the insurance trade, this is called “churning.” The trick to keep the old investors fooled is to bring in new investors. The returns Heffernan promised were from the new cash however the majority of the prime investment just dwindled away.
To keep this particular client engaged, Heffernan bought the guy dinners and gave him a gift card. For other potential investors, he hosted a banquet to lure them into his scheme. He made them feel important. They were older, perhaps they were lonely. It must have felt good for them to dress up and get treated to a dinner. It was just a cover. Heffernan was churning, buying and selling their annuities over and over again. Heffernan’s value was rising, his client’s values were dropping. They pinned their hopes “on air.”
As the fraud became known, the clients and their families finally realized what their “friend” had done to them. On February 5, 2018, Heffernan pleaded guilty 29 counts of fraud including 16 counts of grand theft, 11 counts of elder fraud and one count each of forgery and filing a fraudulent tax return.
The judge settled on a plea bargain because he didn’t want the elderly defendants to go through a trial. By the time Shawn Heffernan gets out of jail, many of his “marks” will be dead. If there is any saving grace, it is that Heffernan will be in his 50s, and may understand that his “ride” won’t last forever either.
The Opportunity
Shawn Heffernan, as most any other con man, saw an opportunity in exploiting a vulnerability and a naivete. His target was elderly, naïve and confused investors. As long as the investors at the top were seeing the fantastic returns he promised, new investors into the scam could see the potential of big returns.
They all thought Heffernan was their friend and after all, they were getting the returns he promised. What they didn’t have was any real value. It was all on paper. There are many lessons to be learned from this fraud; among them is that no one should ever confuse ethical behavior with unrealistic expectations and greed.
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There is so much I would like to say about this situation, but I will keep my mouth shut. It’s a good reminder that there are sociopaths everywhere we look. I pray for all the people that were harmed through this process. Great article.