A&O Life and Adley Wahab Sued for Fraud in Illinois
A&O Life and Adley Wahab were sued for securities fraud related to the sale of life settlement contracts on July 7, 2009 in federal court in Illinois. Here is the Complaint. The Plaintiff is Dr. Charles Giger of Illinois. The Defendants are A&O Life Fund, LLC, James Ahmann, Gary Lange, JW Cole Financial, Inc., Adley Abdulwahab and A&O Resource Management, Ltd. Ahman is the person who actually sold the investment to Dr. Giger. Allegations in the Complaint include:
18. After gaining Giger’s trust and confidence, and in now describing bonded life settlements to Giger, Defendant Ahmann initially gave assurances to Giger that these investments were guaranteeing a 10% rate of return on investments of more than $100,000, and 12% on any investment over $1,000,000. Defendant Ahmann further described the investments as being offered by an entity called A&O Resource Management, Ltd. (above and hereafter “A&O”), and involving A&O’s purchase of life insurance policies already issued on individuals, whose life expectancies were verified by competent medical personnel, such that the face amounts of the policies themselves, when compared to the life expectancies of the insureds, “guaranteed” a return of investment that well exceeded other available investments in the marketplace.
19. Defendant Ahmann also represented to Giger that investments in such bonded life settlements would be further secured by a bonding company, Provident Capital Indemnity, Ltd. (“PCI”), who would contract to make payment on the life insurance policies in the event that the policies did not pay off within a defined time period by virtue of the death of the insured(s).
27. Defendants Ahmann and Lange further stated to Giger at the meeting on April 12, 2006 that the mechanics of these investments were as follows: funds received by investors like Giger would be deposited with an escrow company, Bayou City Escrow, Inc. (“Bayou Escrow”). Thereafter A&O, by and through a company called Houston TangleWood Partners, LLC (“Houston TangleWood”), would actually purchase the policy using funds deposited in the escrow maintained at Bayou City, after receiving enough money from investors such as Giger to purchase the policy, prepay the premiums due on the insurance policy through the life expectancy of the insured, and pay in full the cost of obtaining the bonding contract from PCI. Houston TangleWood would then execute the Loan Documents, including the Line of Credit Promissory Note, in favor of Giger, as well as the Security Agreement to collateralize the return of the principal investment, plus the guaranteed return to Giger.
28. Giger was specifically told at this meeting by Defendants Ahmann and Lange that A&O, through Houston TangleWood, would pay all of the premiums for the life insurance policy ahead of time through the life expectancy of the insured, as well as all payments necessary to procure the contract from PCI, the bonding company, ahead of time, so that there would never be a chance that either the policy itself, or the bonding contract with PCI, would lapse for failure to pay premiums or the bonding fee.
32. However, neither at that meeting or at anytime thereafter did Defendants Ahmann or Lange inform Giger that A&O was not, in fact, registered with the SEC or with the State of Illinois to do business at the time the First Investments were made. Also, Defendants Ahmann and Lange failed to mentioned that PCL, “the bonding company”, was not registered to do business anywhere in the United States.
48. In this same lawsuit brought by the SEC, PCI is identified as a dubious and unlicensed bonding company, who has never been licensed to conduct insurance business anywhere in the United States. (See Exhibit 19, pages 9 & 10).
63. In violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, Defendants Ahmann, Lange, JW Cole, and A&O Resource Management, LTD (through Houston Tanglewood Partners, LLC), in connection with the sale of the First Investments, directly or indirectly, by use of the means and instrumentalities of interstate commerce and of the mails, employed one or more devise, scheme or artifice to defraud; omitted to state one or more material facts to Giger necessary in order to make the statements made, in the light of the circumstances under which they were made, not false and misleading; and engaged in one or more act, practice, or course of business which operated as fraud and deceit upon Giger.
64. Specifically, Defendants Ahmann and Lange directly, and Defendant JW Cole, through its agent Ahmann, and A&O intentionally or recklessly made the following misrepresentations, and/or failed to disclose the foregoing facts subsequently coming to light to Giger, as follows:
a. That A&O Resource Management failed to ever file a federal exemption D prior to the sale of securities for Giger’s First Investments, and therefore sold unregistered securities.
b. That A&O Resource Management failed to register with the State of Illinois before its representatives, Defendants Ahmann and Lange, sold Giger his First Investments.
c. That A&O Life Fund admitted to “cold calling” in the State of Illinois (see Exhibit 25 hereto). Cold calling constitutes a general solicitation.
d. That the State of Texas Department of Insurance had obtained a Cease and Desist Order in November, 2006 against PCI, which any ordinary investor would havefound this as material, yet was not disclosed.
e. That PCI was not registered to do business anywhere in the U.S., and an affiliated person had been convicted of conspiring to commit mail and wire fraud in 1997, and that PCI was the subject of a receivership and injunctive relief obtained by theState of Florida.
f. That not all of the premiums due for the life expectancy of the insured would be pre-paid, in full, using investor monies, as had been represented by Defendants.
g. That the owners of A&O had little or no experience in life settlements and never worked in the institutional market for resale of life settlements to banks and hedge funds.
h. That Midwest Medical Review, LLC was owned and operated by a convicted felon, according to the SEC’s Sacramento Division.
i. That the SEC considered PCI to be a dubious and unlicensed bonding company.
j. That PCI did not insure all imported Hyundai automobiles.
k. That Bayou City Escrow was not an established escrow company.
l. That the Server policy was a “Wet Paper” policy, and that Giger was never explained the risks associated with a Wet Paper policy.
m. That the premiums for the Mangione policy were 6 months in arrears at the time of Giger’s purchase.
n. That A&O had not paid the premiums on the Mangione policy to the term date and continues to fail to pay the premium, such that the policy will default if no premiums are received by December, 2009.
Plaintiff's attorneys are David Audley and Carly Jones of Chapman and Cutler in Chicago.
Needless to say I am not surprised by the allegations in this Complaint. I have been suspicious of A&O and Wahab from the time that A&O intervened in the Colson case and have continued to investigate and report on them despite multiple threats by attorneys who represent them. I believe that Dr. Giger's attorneys are taking the right approach by suing the person who sold the investment, since securities agents carry errors and omissions insurance coverage. I expect more such lawsuits to be filed and suspect that some have already been filed in state courts.
