Mississippi Litigation Review & Commentary : Mississippi Personal Injury Lawyer & Attorney : Phillip W. Thomas Law Firm : MS Litigation Review & Commentary

• Email This
• Print
• Comments (3)
• Trackbacks
• Share Link

On Friday the hammer fell for five men who pleaded guilty in the A&O Life life insurance fraud scheme. Here is a good A.P. article on the sentencing as printed in the Houston Chronicle. The article describes the scam:

"The impact of this massive fraud on many of A&O's investor victims has been disastrous," U.S. Attorney Neil MacBride said in a written statement after the sentencing hearings. "Hundreds of elderly investors invested their life savings with A&O and saw it all vanish in an instant."

The sentences were:

• Brent Oncale (the 'O' in A&O): 10 years;
• David White (former banker and A&O president): 5 years;
• Eric Kurz (middleman who fed info. to salesmen): 5 years;
• Russell Mackert  (A&O lawyer and front-man): 15 years, 8 months;
• Tomme Bromseth (life insurance agent and A&O salesman): 3 years.

Mackert asked for a shorter sentence based on his being stupid:

These sentences put a smile on my face. Life insurance agents, in particular, should heed Mr. Bromseth's sentence. The take-home is that when you put your clients into a scam, you will be held criminally responsible.

Investors should note that they cannot automatically trust their life insurance agents—particularly when it comes to selling investment products. Many of the victims of the A&O scheme invested because they were buying from their long-time life insurance agent who they trusted. The agents, who earned large commissions from the sales, later claimed ignorance as a defense to the scheme.

This is not the first investment scheme fueled by sales made by life insurance agents. Personally, I would not buy anything except insurance from an insurance agent. They may try to become your investment advisor and put you into mutual funds and other investments. I'd say no. Why?

It's sort of like the adage of don't order steak at a fish house or fish at a steak house. Insurance and investing are different.

Read more about the A&O scam here.

• Email This
• Print
• Comments (4)
• Trackbacks
• Share Link

Last week the Costa Rican bond company Provident Capital Indemnity and its owners were indicted in federal court in Virginia for mail and wire fraud. Here is the indictment.

Provident Capital gained attention for defaulting on the bonds that were supposed to guarantee the A&O Life investments.

Here is a Bloomberg article on the indictment. Here is another article about the indictment. Here is a link to the DOJ's press release.

According to the DOJ's press release:

  An indictment unsealed today in U.S. District Court for the Eastern District of Virginia charges Costa Rica-based Provident Capital Indemnity Ltd. (PCI), Minor Vargas Calvo, 59, and Jorge Castillo, 55, each with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud and three counts of wire fraud.  The indictment also seeks forfeiture of more than $40 million from all three defendants.  Vargas was arrested on Jan. 18, 2011, at the John F. Kennedy International Airport, and Castillo was arrested earlier today in New Jersey.

“PCI is accused of lying to investors across the globe to sell more than half a billion dollars worth of ‘guaranteed’ bonds which turned out to be worthless,” said U.S. Attorney MacBride. “This case is another example of how the members of the Virginia Financial and Securities Fraud Task Force are working to detect, deter and punish financial fraudsters who target investors throughout Virginia, the nation and the world.”

        “These defendants allegedly sold $670 million in bonds by making numerous false representations, which were disseminated to thousands of investors,” said Assistant Attorney General Breuer.  “They stand accused of defrauding victims at home and abroad.  As these charges show, the Justice Department is committed to rooting out investment fraud wherever we find it.”

The U.S. Attorney's office from the Eastern District of Virginia is responsible for both the Provident Capital and A&O Life criminal investigations. Hats off to the lawyers, investigators and other members of their team for bringing to justice the perpetrators of a massive financial fraud on good people who were duped by these companies.

• Email This
• Print
• Comments (22)
• Trackbacks
• Share Link

Costa Rican bond company Provident Capital Indemnity was involved in the collapsed A&O Life Investment Fund. According to the SEC, Provident is now involved in another collapsed life settlement "investment."

Here is the SEC's Complaint filed in Texas against American Settlement Associates, Charles Jordan and Kelly Gibson. The complaint alleges that the defendants sold fractional ownership interests in a viatical policy and then did not use the investors' money to cover future premium payments on the policy. Instead, the defendants used the investors' money to support defendants' lavish lifestyles.

 The complaint alleges that defendants raised over $3.7 million from more than 50 investors in 10 states. The defendants promised a fixed rate of return of between 42% and 48%.

How in the world could anyone believe that they could get that kind of guaranteed investment return? If someone promises you that kind of return, then you need to hold onto your wallet and run.

 As in the A&O debacle, the defendants assured investors that the investment was protected by a bond issued by Provident Capital. The complaint alleges that Provident Capital is unreliable, has a checkered regulatory history, and is banned from California.

In all likelihood, this is another life settlement investment scheme that will leave insurance agents collecting large premiums and investors holding the bag. 

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

Saturday's Wall St. Journal had this report on the growing crackdown in the life settlement arena. The story focuses on a Florida insurance became rich selling the policies, but who now faces criminal charges. According to the article:

Mr. Brasner's reversal of fortune is part of a post-bubble crackdown by state authorities, aimed at the middlemen who played a crucial role in filling the pipeline for stranger-originated policies. In a frenzy that bears some similarities to the subprime-mortgage debacle, billions of dollars of stranger-originated life insurance was sold to senior citizens between 2004 and 2008 with the intention of selling the policies to investors. The investors thought they spotted an opportunity in policies that seemed underpriced; some funds accumulated hundreds of such policies.

This is yet another example of why individual investors should stay away from life settlement investments. There are just too many crooks in the business.

For more information on this topic, read about A&O Life Funds.

• Email This
• Print
• Comments (7)
• Trackbacks
• Share Link

The Texas Federal Court Judge who held Adley and Sarah Wahab in contempt has entered a final judgment of over $16.5 million against Wahab, W Financial, Michael Wallens, Sr. and Michael Wallens, Jr. Here is the Final Judgment.

Here is a photo of Wahab.

The judgment finds the four defendants jointly and severally liable for $14,506,449 in profits and interest from their improper conduct. In addition, the Court fined each defendant $500,000 in civil penalties.The court gave the defendants ten days to pay the fine and thirty days to pay the principal amount.

I’m not sure what will happen to the Defendants when they do not pay, but I suspect that the judge may hold them in contempt and order them jailed.

Just days before entering the judgment the court entered this order revising its October order holding Adley Wahab in civil contempt for making unauthorized transfers of assets. Wahab got caught moving his assets to off-shore accounts and probably planned to flee the county. The court ordered Wahab to surrender his passport to the SEC. The court issues a warrant for Wahab’s arrest and stated that Wahab “holds the keys to his prison” because he can get out of jail by complying with the court’s order.

I predict that any freedom that Wahab gains will be short lived. He’s going to be hanging out with the likes of Bernie Madoff and Martin Frankel for a long time.  

Finally, here is the text of an email that I received on June 10, 2009 from Andrew T. McKinney, an attorney in Houston, Texas:

Dear Mr. Thomas:  if you had taken the time to investigate, even superficially, your factual assertions and speculations—defamatory assertions and speculations--you would know that Mr. Wahab is not an owner of A&O Life Funds LP or any related or affiliated entity.  Mr. Wahab sold his interest in A&O Life in the late summer of 2007.  Two material points in connection with that sale are: (1) the funds in escrow were audited and verified by the purchaser, prior to sale, and found to be exactly as represented and (2) a subsequent, post-sale audit was conducted and all funds represented to be in place, in fact were in place.  These two facts conclusively absolve Mr. Wahab of any post-sale wrongdoing since he has had no ongoing managerial or other ‘control’ role with A&O Life Funds LP.  You are invited to withdraw any and all comments about Adley Wahab on your website or plan to litigate this matter in Mr. Wahab’s home town off Houston, Texas. 

 

 

Andrew T. McKinney IV

McKinney & Cooper, L.L.P.

Three Riverway, Suite 500

Houston, Texas  77056

Toll Free: 1(866) 928-8215

Telephone:  (713) 623-6868

Facsimile:   (713) 623-8222

e-mail:  mckinney@mckinneycooper.com

I did not withdraw my comments about Wahab and my suspicions about him being a crook have been confirmed.

Mr. McKinney claims to be knowledgeable about Wahab and A&O. A&O investors with questions about their investment should consider contacting Mr. McKinney with their questions.  

Finally, disgruntled A&O investors continue to contact my office with questions about the scandal and the possibility of my firm representing them. I do not represent investors in A&O litigation and am not going to. I covered the A&O scandal on my blog in order to bring exposure to the scandal and provide information to the victims. 

I have repeatedly stated my opinion that if you are a victim who lost money in the scandal, you are going to have to find someone other than Wahab and his co-conspirators to sue. For most people this means suing the person who sold you the investment. If that person is continuing to tell you that this will all work out, then they are lying to you. If you want to recover any money you are going to have to sue that person for selling you an innappropriate investment.

 When began covering A&O on this blog I was afraid that A&O was still preying on its victims by luring in new investors. With state and federal authorities investigating and national media convering the scandal, my coverage of the scandal will continue to be sporadic.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Saturday’s Wall Street Journal had this article about life settlement investments, which are also known as viatical settlements. The investors buy life insurance policies and pay the premiums until death. The sooner the insured dies the better the investment return. If the insures lives longer than expected, it's the investor who gets killed.

The article pointed out that in an industry full of scam artists, even investors who may not have been scammed can end up taking a bath on the investments.

One example:

Carol Tonzi, a court reporter in Palmyra, N.Y., sank $51,700 into partial ownership of a $5 million policy in 2003 from the now-defunct Mutual Benefits Corp. of Fort Lauderdale, Fla. She says her tax preparer touted the investment as "safe and secure" and said her money in five years would grow to $82,720, a 60% increase.

But Ms. Tonzi, 52, is still waiting for the policyholder, now 89, to pass away. Over the past three years, she says she has shelled out an additional $15,000 in premium payments. She is suing the tax preparer, Richard H. Nichols, in state court in New York, alleging negligent advice. "It's a mess," she says. "If I wanted to gamble, I would have left the money in the stock market."

Prudence is the key for people thinking of investing in life settlements:

Only people with ample financial assets should venture here. Much as with hedge funds, a Life Partners investor must have an annual income of at least $200,000 ($300,000 for a couple) and a net worth of $1 million or more.

"This is not a place for amateurs," says Doug Head, executive director of the Orlando, Fla.-based Life Insurance Settlement Association. "It's a high-risk investment that requires considerable sophistication."

One worrisome issue: fraud. Between January 2004 and July 2009, Conning says, the Securities and Exchange Commission took legal action against 27 U.S. life-settlement funds and advisers. It isn't clear just how many of them there are, but life settlements make the top-10 list of "investor traps," says the North American Securities Administrators Association.

In some instances, the industry has been a magnet for shady operators. California financier Danny Pang died in September battling SEC allegations that his Private Equity Management Group misrepresented hundreds of millions of dollars of investments, including life-insurance policies. When those didn't generate enough profit to cover the cost of the premiums and deliver returns, the SEC alleges, he used money from new investors to cover the shortfall. Ponzi operators who deal in life settlements have also surfaced in Idaho, New Jersey and Texas.

Texas? Adley Wahab and A&O Life anyone?

My advice to someone who has been approached about investing in a life settlement is to be very careful. If the person pitching the investment to you is a life insurance agent, then you probably need to run. Not only should you invest in life settlements only if you have a high net worth, but you should also only invest a fraction of your net worth—say 10% or less. Do not be one of these people who gets talked into investing their whole life savings in any one investment—particularly one as risky as life settlements. As with all investing, diversifying your investments is a key to reducing the risks of investing. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Forbes published an article today on A&O Life. You can access the article here. The article contains a lot of new information on A&O, including the fact that one investor is stuck for over $10 million. The article states: 

The biggest single lawsuit against A&O so far has been filed by Eric Boutte over a $10 million investment made by a Houston trust created for the benefit of his brother, Allen Boutte, and his family. In another case, Countrywide Financial has been sued because its employees brokered A&O life settlement investments to a customer.

Forbes writer Nathan Vardi even talked to Adley Wahab and Provident Capital Indemnity, the Costa Rica bond company that A&O is blaming for investors not getting paid:

In a statement to Forbes, Eduardo Montero, an executive officer at Provident Capital Indemnity, says the company “has no pending obligations with A&O whatsoever.” In another statement, Minor Vargas Calvo, who has been identified in court documents as Provident's owner, says the company has been unable to make bond payments because it has been unable to identify the beneficiary of the bonds. Calvo says Mackert has not proven that Shepherd Capital Management legitimately represents A&O. “How can (Provident) be blamed of not paying the bond if there is no legitimate beneficiary?” asks Calvo in an e-mail.

Adley Wahab refused to comment, except to say “I sold my interest in the company two years ago.” When asked if he felt remorse for A&O investors Wahab said: “Absolutely.” Wahab's lawyer said his client denied any wrongdoing. Allmendinger's lawyer declined to comment.

The article describes the picture of A&O as "chilling." I suspect that the A&O story will get more interesting for casual observers. For investors, the handwriting is on the wall.

Great job by Forbes writer Nathan Vardi.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

The Washington Post ran this story today that warned of the risks in life settlement investments, such as those sold by A&O Life Funds. The article states:

The latest growing exotic investment promotion is in what are called "life settlements" or "senior settlements" or "viatical settlements." They're ghoulish products by any name.

Although they can be marketed and sold legally, the products are so complex and opaque that they are prone to fraud, including: Ponzi schemes; phony life expectancy evaluations; inadequate premium reserves that increase investor costs; and false promises of large profits with minimal risk, according to the North American Securities Administrators Association, which represents state securities regulators.

Life settlements made it to the association's most recent list of the top 10 investor traps.

If you're an individual investor and you've received a pitch to invest in life settlements, there's much to beware. Head and Leimberg said life settlements are not appropriate for individual investors.

"It's pretty darn speculative if you are going to be able to collect on that individual policy," Head said.

Leimberg added that only highly sophisticated investment groups such as hedge funds or pension funds should be buying this investment product.

The problem, he said, is the insured may live longer than expected, significantly reducing investors' expected returns. And the person could live so long that investors are left having to pay the insurance premiums for years just to maintain the policy.

Click the link above to read the entire article.

• Email This
• Print
• Comments (13)
• Trackbacks
• Share Link

I received sad new today for A&O Life investors. Last week the company and related entities filed for Chapter 11 bankruptcy protection in Illinois. Here are the petitions filed by A&O Life and A&O Resources. Also filing bankruptcy were A&O Bonded Life Assets and A&O Bonded Life Settlements. It appears that the companies' creditors are their "investors." Russell Mackert is listed on the forms as being involved in the filings. Needless to say, I am not surprised.

I am not in a position to provide legal advice to A&O investors. However, I can tell you that if I were an A&O investor I would be hiring an investment fraud lawyer in the area where an agent sold me the investment and I would sue the agent(s) who sold it to me. If A&O was a big scam it's going to be like the Madoff scandal where the investors are not able to recover their money from A&O. The agents who sold the policies, however, will likely have insurance coverage that will cover a claim against the agent. If I were an investor, I would also be raising hell with the Securities and Exchange Commission and the Department of Justice.

Here is a list of  people associated with A&O who I believe to be agents who sold the investments for the company. If you are an agent and are on this list and feel like that you are also a victim of A&O, then I am sorry. But you are partially responsible for putting your clients in these investments and in my opinion, you should be held liable for your role. People have gone to jail in Mississippi for acting as agents in what turned out to be investment fraud schemes. What happened here to A&O investors is an example of why agents and brokers carry liability insurance.

• Email This
• Print
• Comments (4)
• Trackbacks
• Share Link

On July 31, 2009 Russell Mackert of Shepherd Capital Management sent a letter to some investors in A&O Life Funds. Here is a copy of the letter. The news is bad. According to Mackert, the company (Provident Capital Indemnity) which issued the payment bonds backing the maturity date of the investment is not paying the investors. This is what happens when a company buys its payment bond from a little known company in Costa Rica. Incidentally, I have heard from investors who have not been paid. The letter does not mention Adley Wahab, but does refer to Prestige Title misappropriating A&O funds.

Mackert goes on to state that the policy backing the investment is in full force and effect, but that premiums are being paid from cash values built up in the policies. In other words, A&O is not paying the premiums. Although Mackert does not explain this, paying the premiums from cash values can be really bad for the policy and can lead to huge premium payments down the road because all cash values have been exhausted. This is particularly true in policies insuring the lives of elderly people, because the premiums on a life insurance policy get more expensive as we age due to shorter life expectancies. It can be sort of like when an adjustable rate mortgage resets at a higher interest rate. I believe that most or all of the A&O policies insure lives of elderly individuals.

Mackert gives the investors 3 options:

1. investors pay a pro rata share of the premiums on the polices (on the policy in this letter the premium is $29,015 every 3 months)
2. sell the policy on the secondary market
3. do nothing and lose the entire investment.

None of the options involve A&O or the related companies paying the premiums: "the company does not have the funds to pay for such premium needs."   

Many, if not all, A&O investors bought the investment from a securities broker or agent. If I were an A&O investor I would be talking to the SEC and other federal authorities, questioning the person who sold me the policy on what was his commission and what due diligence did he do, and trying to hire an attorney. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Kingfish has this interesting new post about a possible Jackson based investment scam called Steadivest. As usual, Kingfish's investigation and analysis is in-depth and better than what you are seeing these days from Jackson's mainstream media. Kingfish wraps up the post with this spot-on summary of the common fact pattern of many investment scams:

I have seen this scenario so many times that I can almost predict the outcome. Firm solicits investors in some exotic creation that promises a new way of doing business. Firm is actually a "family" of companies that are constantly created and dissolved with ownership moved around from officer to officer. Said companies also tend to have very short life spans. Owner lives high on the hog, buying a fancy home on the water in the Palisades as investors give him millions of dollars, only to see the money lost in bankruptcy. Owner files bankruptcy1 for one company while keeping the others operating, thus allowing him to continue the um, game (can't say scam, might get me sued at this point.). This one smells, folks and it doesn't take a genius to figure out what is going on in this case.  

And yes folks at the JFP, I know he's not really a fish. But throw the man a worm. Blogging with that kind of detail is not easy.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Bernard Madoff scandal shows how easy it is to get swindled by a con man. If anyone looked legitimate it was Madoff, who was the former chairman of NASDAQ. But his investment business was a massive scam involving as much as $21 billion with victims including Hollywood celebrities and hall of fame athletes. While it may not always be possible to spot an investment scam, there are certain well know warning signs to look for. Motley Fool has this informative article on six signs that an investmet is a scam. Number one on the list is:

1. The promise of "low risk and high gain." Click your heels three times and repeat to yourself: "There is no such thing as a free lunch." It's a fundamental fact of investing that the higher the potential return, the higher the risk that you may never see that return.

Here is an article on investment fraud including descriptions of the most prevalent forms of fraud along with information on how to report investment fraud to the authorities. An example of an investment fraud scam was the scam a few years ago in the Mississippi Delta involving life insurance agent Victor Nance:

On February 20, 2004, in Jackson, MS, Victor G. Nance was sentenced to 10 years in prison, fined $10,000, and ordered to pay over $9.1 million in restitution for his part in a large scale Ponzi scheme.  Nance pled guilty to depositing $519,015 into AmSouth Bank, knowing that the funds were derived from mail fraud or wire fraud.  He also pled guilty, along with co-defendant Hamric, to the forfeiture count designed to recover the $10.2 million that investors lost in the fraud scheme engineered by Hamric and Nance.  Nance had been a financial advisor for years and convinced many of his clients that they should invest in a “Promissory Note” with Louis Hamric which would pay them between 18% and 30% per year.  Nance convinced over 40 clients to invest over $10 million in this scheme.  In return Hamric paid Nance approximately $4.8 million in commissions for his services.  Although the victims were told that they were investing in a money trading program, no such programs exist and the interest they received was, in fact, a repayment from their own funds.

Finally, here is an article on how to protect yourself from an investment scam. Victims of scams can sometimes recover part or all of their loss, but it typically involves complex litigation against multiple parties. The best way to protect yourself is to not get scammed in the first place.