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:

The judge rejected a motion by Mackert’s attorney for a lighter sentence. The attorney, Carolyn Grady, said Mackert’s participation was solicited by one of A&O’s leaders and "he was naive enough and not smart enough to look behind the curtain and see the fraud." 

My Take:

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.