Mismanagement cost Powerball jackpot winners money and time

By Kate Northrop

A Minnesota couple who won a $180.1 million Powerball jackpot in 2008 have come forward to talk about how they lost millions to their financial advisor's poor management and spent five years embroiled in court battles.

Two Powerball winners of a $180.1 million jackpot lost a significant portion of their lottery prize after a financial business they entrusted their winnings to sunk their portfolio.

Paul and Sue Rosenau, of Waseca, Minnesota, were sitting at home watching late night news on television when they found out somebody in the state won $180 million in the lottery. Paul got his ticket out and listened as the news anchor read every one of his numbers out loud as the winning combination for the Powerball jackpot.

It was the then-largest Powerball jackpot ever won in Minnesota. After taking the $88 million cash option of the prize, Paul and Sue were left with a rather comfortable $60 million.

"We pretty much gave everything but $10 million away," Paul told the Star Tribune.

Paul was a construction worker who shared three children with Sue. As the son of a Lutheran pastor, he made a big donation to his church, a local hospital, and a community fund for his hometown of Waseca.

He called his accountant soon after finding out they held the jackpot-winning ticket. They had no prior investment experience and wanted help managing the money. They didn't want to change their lifestyle, stating that their hope was to live a regular life.

They made a deal with Des Moines-based Principal Financial Group, who sent the lottery winners a private plane to fly them from Waseca to their headquarters for a meeting with senior managers. The representative responsible for managing their money would be John Priebe.

"They were trying to impress us that they were a big company and that they could handle us," Paul said in the interview. Priebe "seemed to be an honest person you could trust," he added.

The Rosenau's first grandchild, Makayla, was diagnosed with Krabbe disease, a rare and fatal neurological condition typically found in young children. She was two years old when she passed away.

Paul and Sue put $26.4 million, to be managed by Priebe and Principal, toward the creation of a foundation to fight Krabbe disease called The Rosenau Family Research Foundation. The organization has its own scientific advisory committee and awards up to $2 million every year to researchers around the U.S. The foundation directly contributed to pre-clinical research, with Krabbe disease treatment now in clinical trials.

"We asked God what we could do," Paul told the Star Tribune at his home in Prior Lake. "He was quiet for five years. [The lottery win] was divine intervention. God said, 'You asked for it, here you go, but don't screw it up.'"

Filings in a lawsuit against Principal Financial Group revealed that the relationship between Paul and Priebe had deteriorated by the spring of 2017. According to the filings, Priebe had arranged a viatical sale of an insurance policy on Sue's life, which was held by the Rosenaus' foundation. A viatical settlement provides a life insurance policyholder immediate cash in exchange for the sale and transfer of the policy's ownership rights.

Sue was diagnosed with cancer in October 2015 and passed away in 2018. Prior to the viatical sale, the foundation would have been given the full $3 million of the policy's value. Instead, the foundation received a discounted $1.4 million from the viatical deal, and the investor who bought the policy was awarded the full $3 million.

In 2017, the Rosenau foundation had ended its relationship with Priebe.

In October 2019, Principal "discharged" Priebe over "concerns with his business practices and the lack of documentation supporting them," a FINRA document states. Priebe died by suicide at age 49 three months later.

In 2022, Paul hired two attorneys to file a complaint with the Financial Industry Regulatory Authority (FINRA) on the foundations' behalf that accuse Principal Securities of violating FINRA rules and U.S. securities laws.

By this point, Paul and his attorneys had pieced together a large picture of just how poorly their funds had been managed by Priebe and Principal. The foundation alleged that Principal had sunk 99% of its portfolio in variable non-qualified annuities and eight life insurance policies, the Star Tribune said.

The annuities "generated huge commissions for Priebe and Principal," the FINRA complaint read. "The foundation's assets were wasted."

The Rosenau foundation sued the financial business in 2022 to recover $22 million from "loss of use of capital," or at least $6.8 million for the funds lost on excessive deals involving the annuities and life insurance policies.

Principal Securities was found liable by FINRA on June 5 and was ordered to pay $7.34 million in compensatory damages to the foundation. However, the foundation's request for punitive damages and attorneys' fees was denied.

The foundation and Rosenau family members also sued Principal Financial and two of its subsidiaries in Waseca County District court in 2022 for negligence and fraud, to do with two Rosenau family life insurance trusts unrelated to the foundation.