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

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Here is the bankruptcy trustee's initial report in the A&O debacle. It details irregularities and problems that observers of A&O have come to expect. Some of the noted problems include:

• many of the A&O policies have lapsed.
• there are ownership disputes with many of the policies that haven't lapsed. This means that A&O may not really own the policies.
• Provident Capital probably is not going to pay on the bonds that were supposed to back up the policies.
• there was a bait and switch pulled on investors: they were told that they were getting one type of investment, but actually got something else.

The trustee's website is a great A&O resource and there is not much that I can add from an information standpoint.

From an opinion and commentary standpoint, I am impressed with the efforts of the trustee. If I was an investor I would support the current trustee based on the information that I have seen.

As far as blame, do not buy into Russell Mackert and A&O's attempt to blame this debacle on Prestige Title and Stephen Colson. They are using Prestige and Colson as scapegoats. All indications are that the interpleader case that froze Prestige's funds accelerated A&O's demise rather than caused it. All you really need to know about A&O is that the founder (Adley Abdulwahab) lied about his education in touting A&O as a legitimate enterprise. If this is not evidence of a con man, then I do not know what is.

If I were an investor who has not yet hired an attorney, I would be looking for an attorney who is willing to file suit against the agent who sold me the investment. I continue to believe that agents' errors and omissions policies are the best hope for recovery. In addition, if the government prosecutes and recovers funds in the case, then there could be an avenue for the victims to recover losses from the government. Finally, Russell Mackert and any insurance coverage that he carries could also be a potential target if, as expected, it turns out that the A&O sale to Blue Dymond turns out to be a sham.

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U.S. Bankruptcy Trustee Patrick Collins did not pull any punches at the A&O creditor's meeting last week. You can listen to the entire meeting here. The meeting was over three hours long and Mr. Collins' comments were a small part of it. Among Mr. Collins' comments to the investors:

• you've been screwed;
• you've been lied to;
• some of the A&O policies have already lapsed;
• the lapse of other policies is imminent; and
• there is no money or other assets available to pay premiums on the policies.

Participants by phone included government regulators, including attorneys from the Texas attorney general's office. Discussions were heated at times and sad at others. One woman said she put her kids college fund into these investments and asked if she was going to be able to send her kids to college.

Russell Mackert testified under oath. Among Mackert's testimony:

• he lives in the same subdivision as Abdulwahab ("Wahab") and Mackert's finance is Wahab's wife's aunt;
• Shepard Capital was created for the purpose of acting as custodian of the A&O entities;
• the sale price of A&O to Blue Dymond was close to $3 million;
• Blue Dymond is a Nevis LLC;
• he dealt with RJ Stephenson from Blue Dymond;
• Mackert drafted the sale documents;
• he drafted trustee documents for 10-12 insureds and he was referred by life insurance agents;
• he was trustee for some of the policies;
• he controls A&O Life Funds LP's bank accounts;
• there are a few hundred dollars in the bank accounts;
• in March 2009 they started hearing about Prestige Title's problems;
• the Prestige-A&O relationship pre-dates Mackert's involvement with Shepard;
• the $4.6 million that A&O gave to Prestige to pay premiums was supposed to last for the life of all the policies;
• Mackert filed a police report with the Biloxi police department;
• Shepard hired an attorney in Biloxi [Don Dornan] to represent A&O; 
• Prestige bounced checks for premiums in February;
• Oncale and Almindinger loaned money ($40,000 each) to the company so premiums could be paid;
• Wahab had other legal problems and couldn't contribute;
• under the bond agreements the bond holders were supposed to pay if the insured did not die by a certain date;
• PCI did not pay under any of the bonds;
• 1 bond should have paid out as of today; 
• he described getting the run-around from the bond company; 
• the folks in Mississippi [Stephen Colson] looted the company's funds; and
• the bulk of the investors' money was used to acquire policies. 

Someone said that substantial commissions were paid to insurance agents who brought these policies to the companies. It was also said:

• the paper work is a mess;
• there is a secondary market for these policies where they could be sold;
• Mackert and his lawyer don't know what happened to any money before Mackert got involved; and
• they don't know if there were inappropriate distributions to insiders or brokers.

 Patrick Collins said there was wide-spread fraud here and law enforcement in multiple jurisdictions are looking at this. He can't really say when it started and stopped or who did it.

Mackert said there is an on-going federal investigation involving Prestige's principal [Colson].

It does not take a rocket scientist to see what happened here or where it is headed. The details have not emerged yet, but the big picture is clear. See this prior post regarding where the A&O money went. I'm not buying that all A&O's problems were caused by Prestige and Colson.   

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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. 

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In this memorable quote from the movie Wall Street the character played by Michael Douglas tells Bud to call a number and tell the man that Blue Horseshoe Loves Anacott Steel. A&O Life's filing in federal court listing its member partners reminded me of this quote. The only new name identified in the affidavit was Blue Dymond Capital Group, LLC, a citizen of the West Indies. The person signing the affidavit was A&O front man Russell Mackert.

Mr. Mackert claims to have personal knowledge of the facts in the affidavit, but does not explain who he is, how he obtained that knowledge or his relationship with A&O. The affidavit does not mention Adley Wahab, who is presumably the man behind the curtain. Mackert and A&O seem shady--real shady. Their presence in this litigation is bad for Steve Colson, because he was doing business with these shady characters.