10/06/2008 – Thinking about doing business with the Neptune Society? Think again. For years, FCA has been pointing out Neptune’s tricky accounting practices they use to illegally pocket consumers’ prepaid cremation money instead of putting it in the bank as most state laws require. Finally, one state is taking legal action. Hats off to the Colorado Division of Regulation for a great job protecting funeral consumers. Here’s their press release. . .

NEWS RELEASE

For Immediate Release – Oct. 3, 2008

Contact: Cameron Lewis, Colorado Division of Insurance, 303.894.2261
Chris Lines, DORA Public Information Officer, 303.894.7873

DORA’s Division of Insurance Alleges Neptune Society Used “Bait and Switch” to Lure Consumers
to Purchase Pre-Need Funeral Contracts

Colorado’s Commissioner of Insurance, Marcy Morrison, has ordered representatives of the Neptune Management Corporation,d.b.a. Neptune Society (Neptune) to appear at a hearing to answer charges that the company misled consumers and manipulated prepaid, preneed funeral accounts in order to skirt Colorado law and maximize profits.

An investigation by the Division of Insurance indicated that the Neptune Society was using a “package plan” offer to entice consumers to purchase a particular pre-need funeral services contract. While state law mandates that 75 percent of a pre-need funeral services contract be held in trust to protect the consumer, the Neptune Society created a plan that allowed Neptune to keep, rather than trust, more than half of the entire plan premium.

“We will not stand for businesses that ignore consumer protection laws,” Morrison said. “Pre-need funeral plans are prime targets for scams because the service purchased is not provided until an unknown date far into the future.”

Most pre-need funeral plans require full payment at time of purchase for funeral services, such as burial or cremation, although the purchaser does not know when, in the future, the services will be used. With funeral plans and pre-paid cremation services running thousands of dollars per contract, Colorado law provided that 75 percent of any preneed plan would be held in trust. That way, should the firm close its doors, move out of state, or no longer offer the service purchased, the consumer could still have most of the money returned in order to purchase another plan.

By reducing the amount actually trusted, through a dual-contract system, Neptune has kept approximately $2.6 million of consumers’ money that should have been protected in trust.

Allegedly, Neptune Society skirted the law by inducing consumers to purchase a “package deal” and sign two contracts: one for future funeral and/or cremation services, and a separate contract for the immediate purchase of merchandise, such as a funeral urn, at grossly inflated prices. Most of the funds from the funeral services contract were held in trust, as required, but the funds from the “merchandise” contract were not trusted.

As an example,

· One contract purchaser paid a total package price of nearly $1,333.

· Of that amount, 55 percent of the package price (about $700) was charged for “upfront merchandise” on a separate contract.

· Rather than place three-fourths of the entire $1333 into trust as required by law, Neptune chose to place only 75 percent of the remaining $610 into trust.

· This means a customer who had paid nearly $1400 for a preneed funeral contract had less than $560 trusted.

· In addition, the “merchandise” costs were inflated with a charge of $349 for a funeral urn valued at approximately $13.

The “bait-and-switch” is just one of several charges filed against the Neptune Society. Neptune must also answer charges related to:

· plan and practice to avoid compliance with preneed trusting requirements,

· violations of the general provider agreements,

· conditioning the sale of a preneed contract upon the purchase of a second contract, and,

· violation of several tenets of the Colorado Consumer Protection Act.

With approximately 5,000 pre-paid funeral accounts in Colorado, Neptune confirmed that fully 100 percent of their customers had chosen the “package deal,” which appeared to cost less than purchasing those same items individually. However, the “package deal” allowed Neptune to put as little as 35 percent of the package price in trust, thereby avoiding trusting approximately $525 per each preneed contract. The amount that Neptune has avoided trusting is close to $2,625,000.

The “Notice to Set” scheduling conference will be held October 24, 2008, at 1:30 p.m. at the Colorado Office of Administrative Courts, 633 Seventeenth Street, Suite 1300, in Denver. At the Oct. 24 scheduling conference, Neptune Management Corporation and the Division of Insurance may agree to engage in alternative dispute resolution, or a date for a full hearing will be set.

DORA is dedicated to preserving the integrity of the marketplace and is committed to promoting a fair and competitive business environment in Colorado. Consumer protection is our mission.

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November 1, 2007 —We’ve had numerous consumer inquiries and complaints about companies calling themselves the Neptune Society. Lamar Hankins of the Austin Memorial and Burial Information Society in Texas, has figured out that not all Neptunes are the same. There are several companies with this name that are entirely unrelated to each other. Here’s the explanation from the largest Neptune (this company is publicly traded on Wall Street):

The Neptune Society, Inc., through its wholly-owned subsidiary, Neptune Management Corp., owns the right to provide cremation services under the tradename and service mark “Neptune Society” in the 49 states outside of California, and in Los Angeles, Ventura, Santa Barbara and San Luis Obispo Counties within the State of California. The Neptune Society, Inc., and its predecessor companies, have been providing cremation services for more than 30 years. The Neptune Society, Inc. is not affiliated with other Neptune Societies in the State of California that provide cremation services outside of the Counties of Los Angeles, Ventura, Santa Barbara and San Luis Obispo. In those California counties where we do not own the right to use the name Neptune Society in connection with our services, we provide our services through an affiliated company, Trident Society®. In some states, applicable laws require us to use names other than Neptune Society. In Oregon, we provide our services as “Neptune Cremation Service”.

Below is an article Hankins wrote for the Fall, 2007 edition of Creative Choices, the newsletter of our Austin funeral consumer group. Like we’ve seen in the past, he found Neptune’s prices were significantly higher for a simple cremation than many other services in the area. Hankins also found the company’s price lists confusing and misleading. Here at the national office, we often hear from consumers who’ve been solicited by Neptune salespeople, only to find out they could have bought a simple cremation for about half the price Neptune is charging. The company is heavily into selling “preneed.” As always, we urge people to avoid prepaying for death services unless they need to set aside assets for Medicaid. Remember, no matter what a funeral salesman tells you about “peace of mind,” “freezing today’s prices,” and “taking care of everything,” there are huge consumer pitfalls involved in prepaying. For better options, see our pamphlet on preplanning without prepaying.

Courtesy of the Austin Memorial and Burial Information Society

‘The Neptune Society, a cremation service provider on the West coast since the early 1970s, has now opened three locations in Texas–in Ft. Worth, Houston, and Austin.In a recent interview with the Editor of Creative Choices, Neptune Management Corporation President and CEO Jerry Norman explained that there are four Neptune groups, all of which are separate companies. The Neptune Society that he manages presently operates in ten states and has headquarters in Ft. Lauderdale, Florida.

Several AMBIS members have contacted the AMBIS office recently after receiving mailings from Neptune. Neptune’s marketing plan in Austin consists primarily of mailings to lists of names and addresses of people aged 60 and over that were purchased from mailing list vendors.Neptune strongly promotes prepaying for cremation services, a practice that AMBIS does not support unless a person is preparing to qualify for Medicaid.

Neptune is moderately expensive. It uses two General Price Lists (GPLs)–one for preneed sales and one for at-need sales. Whether at-need or pre-need, Direct Cremation with an alternative container can be purchased for $1592, though Neptune claims that its minimum price would be $2066 at-need, but that includes some items that are not needed by most families, like common scattering of the cremated remains at sea. The average direct cremation cost in the 2007 AMBIS survey of funeral costs is $1642.Fifteen Austin-area cremation providers surveyed provide direct cremation for less than Neptune’s $1592 charge.

However, Neptune offers a “Direct Cremation Package”for $1389, whether purchased at-need or pre-need. When purchased at-need, the package does not include a“Neptune Information Guide and Portfolio” (valued at $249). The package does include an urn valued at $349. The wholesale cost of both the information package and the urn is probably less than $100. Thirteen Austin-area providers offer direct cremation for less than $1389. When purchasing pre-need, Neptune offers “Transportation Protection” for $399. If a purchaser dies more than 75 miles from where the pre-need contract was purchased,Neptune guarantees service at no additional cost[Note from FCA – this is a common “feature” of prepaid plans, but most consumers don’t need it. We think it’s not worth $400].

A 20 ga. steel casket at Neptune costs $1,895, higher than the cost of a 20 ga. casket charged by all of the service providers included in the 2007 survey. Neptune will be included in our 2008 survey due out next February.Neptune is still experiencing some glitches in its operations in Austin, including mistakes in its GPLs, but the company says these problems should be resolved soon.’

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Neptune’s Preneed Deal

• Would you buy a preneed from Neptune if you knew you’d get less than half your money back if you wanted or needed to change your mind?
• Would you start making payments if you knew you wouldn’t get the first half back at all?
• Would you choose Neptune if you were still in good health and traveling, knowing that your family would have to foot the bill if you died out-of-town and would get reimbursed by Neptune for less than half of what you paid?

Not all Neptune Societies are owned by the same company. We have no way of knowing if they all operate the same way. The following trust fund trustees are identified on the preneed contract sent to the FCA office: Emanuel Weintraub, Jacqueline Bell, and Irwin Karp—with offices in Burbank, San Pedro, and Santa Barbara, California. If you have a different preneed agreement with another Neptune Society, the FCA office would appreciate a copy—to confirm that others might be doing the same thing, or to give credit where credit is due if they aren’t.

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In 1992, Virgil Poch and his wife made cremation arrangements with the Neptune Society in Santa Barbara. The following are verbatim excerpts:

MERCHANDISE STORED OR DELIVERED

Cremation Urn: $77.80
Cremation Container: $298.00
Disposition of Remains with Memorial Plaque
_X_ Sea Scattering ___Rose Garden ___ Return to Family: $115.00
Total Merchandise: $490.80
Sales Tax: $37.98

TRUST FUND

Professional Services—Including cremation, removal, refrigerated holding facility, procurement of signed death certificate, disposition permit, professional and administrative services, Neptune Staff, transportation within County of address listed below.
TOTAL FUNERAL TRUST FUND: $470.00
TOTAL PURCHASE PRICE: $997.98

ALL PAYMENTS made under this Agreement shall be applied first on merchandise stored or delivered, then on sales tax, and then on deposits to the general trust fund. [That’s to guarantee they can keep the maximum under law if you default or cancel.]

DELIVERY PROVISION: Purchaser is entitled to delivery and possession at seller’s principle [sic] place of business of each item described as merchandise stored or delivered herein only upon payment in full of the Total Sales Price of this Agreement. Upon such full payment seller will deliver or warehouse for Purchaser all such items.

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On the back of the contract:

TRUST PROVISIONS

1. ARRANGEMENT FOR SERVICES: In consideration of the payments provided herein, Seller agrees that it will provide merchandise of quality described [no description], and will provide for the other articles of professional services and facilities described for the final rites of the Purchaser. This agreement includes the services of on call 24 hours, procuring attending physician’s signature for death certificate, preparing death certificate, all crematory charges, completing and forwarding Social Security forms and Veterans Administration forms for reimbursement of applicable death and burial allowances to the family. The agreement does not include services of out-side mortuaries, funeral notices, removal from home [what’s the other “removal” on the front good for—death in a hospital or nursing home only?], death certificates [not even one?], filing permit fees, removal of pacemakers and special handling for contagious diseases [it’s illegal to charge extra for this].

. . .

5. TERMINATION OF THE TRUST . . .
B. CANCELLATION BY TRUSTOR: All written requests for revocation by the trustor of a trust shall be honored within fifteen (15) days of receipt thereof. The portion of each pre-need contract that is fully refundable are the funds held in trust [in the case of Mr. Poch, only $470]. The merchandise and sales tax provision of the agreement is non-refundable as this merchandise has already been purchased and stored for your use at time of need. This merchandise is available for your pick-up at one of our warehouses. . . .

6. INABILITY TO PERFORM: If, for any reason, Seller is unable to perform the funeral services prior to or upon the death of the beneficiary of a before-need trust agreement, then the trustees shall pay all trust principle [sic] to the beneficiary, trustor or the legal representative . . . [again, in the case of Mr. Poch, only $470].

7. DEATH OUTSIDE OF SERVICE AREA
A. . . . All expenses of the mortuary outside of the Seller’s service area including preparation and shipment are to be paid by the Purchaser’s family or heirs. If applicable, refunds or adjustments would be made at the time of death. [Only $470 would have to be returned to your family.]

B. If the Purchaser wishes to use a mortuary in an area out of the service area of the Seller, the Seller, upon notice will do all possible within 24 hours of notice to provide the same services through a mortuary in that area. [What about same merchandise? Or will that be left unclaimed in the local warehouse?]

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This is a GREAT example of why it is a TERRIBLE mistake
to prepay for your funeral!
According to California law (7735), 100% of what is prepaid for a funeral arrangement must be placed into trust. Later in the same article, however, appears an exception (7741) for “merchandise that is delivered as soon as paid for.” This is called “constructive delivery” and has caused problems in every state where such dubious dealing is permitted (notably Florida, not in Texas). Because the merchandise has been “purchased” and “stored,” the cost for such is not refundable. Is the state of California checking to see if it’s actually there? In another state, less than half of what was supposed to be in the warehouse was found when the state showed up for inspection. <

That Neptune lists its “cremation container” at $298 is further evidence of milking the situation for its own benefit—to the detriment of consumers. No state will tell a company how much it may or may not charge for various items of merchandise. But $298 for what could be a $10 cardboard box?! By taking an outrageous mark-up on the box and minimal pricing on services, Neptune has pocketed more than it placed in trust and limited the amount of any transfer or refund should you die while away or if you decided to cancel the whole thing altogether.

Note that the $115 cost of ocean scattering, a service, is listed under “MERCHANDISE STORED OR DELIVERED” and not placed in trust. This service is inexplicably linked with merchandise—the memorial plaque—but there is no logical or necessary link between the services offered and this item of merchandise. Because an undelivered service (ocean scattering or any of the other available options) cannot be warehoused, it appears that Neptune has violated trusting requirements in this regard.

Actually, the California law on constructive delivery was amended in 1995, AFTER the Pochs had purchased their Neptune plan. Merchandise must be actually given to a consumer now, not stored. And what is Neptune giving to consumers at the time of arrangements? According to one report, the consumer gets a funeral planning booklet (valued at several hundred dollars to avoid trusting the full amount).

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Neptune at least admits up-front how much is NOT going into trust. Unless you have a statement that indicates a full refund or transfer of what you paid can be requested at any time, preneed purchasers of other arrangements should mark the contracts: DO NOT DELIVER MERCHANDISE UNTIL TIME OF NEED. And then get verification that the full amount paid has been put into trust—not the warehouse. Better still, keep your money in a pay-on-death account at your own bank and let your family know it’s there.

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August, 2001

According to General Price Lists in our possession, Neptune in Portland, Oregon, is charging $300 MORE for cremation services sold PRENEED than at the time of death. Consumers in other locations where Neptune is operating are advised to be cautious before making any preneed purchases.

Funeral Consumers Alliance has mailed the following letters, out of concern for the problems of preneed buyers in the states where The Neptune Society, Inc. is operating.

August 27, 2001

Myra Howard
Federal Trade Commission
600 Pennsylvania Ave. NW, HQ-238
Washington, DC 20580

Dear Ms. Howard:

We believe the Neptune Society, by requiring the purchase of certain items, is in violation of the FTC Funeral Rule. One Florida preneed agreement lists a $49 charge for the 78-page “Neptune Society Information Book,” a $99 charge for a “Lucite Plaque,” and $129 for a “Minimum Urn.” An inquiring consumer was told these items could not be declined. The crematory, by necessity, must place the cremated remains in a receptacle even if only a plastic bag, the cost of which should be part of the cremation price. (Someone selling ice cream doesn’t charge separately for the cone or a plastic cup.) In Portland, Oregon, Neptune customers are being charged $149 for the information booklet. (See enclosed.)

We believe these or similar schemes are occurring at all Neptune locations for the purpose of recognizing a disproportionate share of the revenue prior to the delivery of cremation services. (A separate complaint, enclosed, is being sent to the SEC, as we believe these tactics are a violation of SAB 101.)

By handing a consumer a planning kit, registration kit, and plaque–to which unreasonable and exorbitant prices have been assigned–Neptune reduces the amount of money placed in trust by nearly half. This practice is injurious to consumers who may die in another location, move, or simply want to cancel the contract. These people won’t be able to transfer or receive adequate funds to pay for a cremation elsewhere.

Because Neptune is actively pursuing preneed sales, including anticipated new markets, and because the future viability of this company is in doubt per the last annual report, we would appreciate your immediate attention.

Sincerely,

Lisa Carlson, Executive Director

cc: Neptune Society, Inc.
Rudy Thomas, Arizona Board of Funeral Directors
Jeff Brown, DCA, California
Colorado Dept. of Insurance
Larry Folsom, Florida Dept. of Banking and Finance
Dennis Britson, Iowa Dept. of Insurance
Debbie Orecki, NY State Funeral Board
Jodi Hanson, Oregon Mortuary and Cemetery Board
Jon Donnellan, Washington Funeral and Cemetery Board
SEC Complaint Center and Robert Bayless, Division of Corporate Finance

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August 27, 2001

SEC Complaint Center
450 Fifth St. NW
Washington, DC 20549-0213

This complaint is being filed in regard to the Neptune Society, Inc. for what we believe are fraudulent trade and accounting practices in violation of SAB 101. It is of particular concern to us because these practices will harm at least some of Neptune’s customers who, in the future, may need or wish to change their plans.

According to the SAB 101 FAQ discussion (Topic 13.A.3 –question 4), a company may recognize revenue in a multi-element sale only if the elements are saleable independently of the bundled package and the elements are priced at fair market value based on evidence that is “reliable, verifiable, and objectively determinable.” Furthermore, an undelivered element must not be essential to the functionality of the delivered element.

While it is likely that similar practices appear to be happening at all Neptune locations, the Neptune tactics in Portland, Oregon seem especially egregious. Enclosed please find a copy of their “Neptune Cremation Service Pre-Need and Pre-Payment General Price List.” If one wishes to purchase a “Basic Cremation–Local,” the following services are provided:

Basic Services [$495]
Transfer of the body from the place of death [$350]
Preparation of deceased
Refrigeration [$300]
Fibreboard cremation receptacle [$20]
Cremation process [$225]
Registration packet * [$79]
Neptune Cremation Service information book * [$149]
Memorial Plaque * [$99]
Minimum Urn * [$179]

Neptune does not disclose the total cost of itemized merchandise and services ($1,896), instead offering these at a package price of $999. Only $500 will go into trust, the brochure indicates, with the asterisked items above “delivered” and the remaining $499 therefore not refundable.

Neptune’s own prices, as found on their General Price List, reveal that the goods and services which are not delivered at the time of sale total $1,396. Yet, Neptune puts only $500 in trust to cover the cost of delivery of those goods and services. This is not the consumer protection such trusting laws were created for.

We challenge the rationale on which the “delivered” items can be claimed for the purpose of revenue recognition for the following reasons:

• It is a violation of the FTC Funeral Rule for a funeral service provider to require the purchase of any item. (See our letter of complaint to the FTC of this date, enclosed.)

• A registration packet would NOT be purchased by a consumer from Neptune except for the requirement by Neptune to do so and certainly not independently of cremation services. If the registration packet has any value, it is of value only to Neptune as a record of the transaction.

• The (required) purchase of a “basic urn” is a highly unlikely sale independent of a person’s plan to purchase cremation services. Because it’s not your ideal cookie jar, its functionality is, in practice, dependent on the final cremation. Some don’t wish an urn at all, preferring instead to accept cremated remains in the plastic or cardboard box that comes from the crematory
• Some would find a Lucite memorial plaque in exceedingly poor taste, and wouldn’t dream of such a buy. Neptune, however, is requiring its purchase.
• The price of $149 for the “information book” (78-page booklet) is NOT, we believe, listed at “fair market value” and would have minimal if any sales if marketed independently. In fact, the evidence for our claim is compelling. The following have been offered to the public in recent years: Last Wishes, a 123-page, write-in, spiral-bound, soft-cover, trade book, retail price $14.95; “Before I Go, You Should Know,” a 20-page end-of-life planning kit for funeral plans with a Living Will in a plastic document pouch accompanied by a refrigerator magnet, retail price of $10 includes shipping; The Beneficiary Book. a large three-ring binder with 122 pages in nine detailed sections, retail price $29.95. Those are examples. Quite a few others of the same ilk in a similar price range are being offered. While another end-of-life planning guide might find a market niche if it had something unique to offer, certainly the $149 price Neptune has attributed to its “information book” (booklet) would make independent sales verygive away attractively printed booklets for documenting end-of-life plans and wishes. Neptune’s ploy is not only out of step with the industry practices but could not be independently sustained, we believe, given the competition. unlikely. Furthermore, it is common practice for many funeral homes to

Neptune’s annual and quarterly reports repeatedly refer to nonrefundable purchases as a key financial asset. Given the vagaries of the human existence, folks move, die while traveling (without a protection plan), or change their plans, perhaps because they’ve subsequently located the same services for considerably less. Under the current scheme of recognizing revenue, Neptune benefits itself to the detriment of consumers by its use of unfair practices, tactics that drastically reduce any possible refund or transfer of funds.

Because of Neptune’s aggressive marketing and growth plans, we would appreciate your immediate attention.

Sincerely,

Lisa Carlson, Executive Director

cc: Robert Bayless, Division of Corporate Finance, SEC
Myra Howard, FTC
Neptune Society, Inc.
Rudy Thomas, Arizona Board of Funeral Directors
Jeff Brown, DCA, California
Colorado Dept. of Insurance
Larry Folsom, Florida Dept. of Banking and Finance
Dennis Britson, Iowa Dept. of Insurance
Debbie Orecki, NY State Funeral Board
Jodi Hansen, Oregon Mortuary and Cemetery Board
Jon Donnellan, Washington Funeral and Cemetery Board