An investment wholesaler in Texas has pleaded guilty to federal mail fraud and money laundering charges in connection with efforts to market life settlements to investors, U.S. Department of Justice officials say.
Eric M. Kurz of Woodlands, Texas, has pleaded guilty to conspiracy to commit mail fraud and money laundering from 2005 through 2007 as a wholesaler for A&O Resource Management Ltd., Houston, and a number of related businesses, according to officials in the U.S. district attorney’s office in Alexandria, Va.
Four other defendants associated with A&O have pleaded not guilty to related charges and are awaiting trial.
A&O, a group of businesses founded in November 2004, obtained life settlements from a wholesaler, then marketed and sold interests in the settlements to investors, according to court papers filed by the Alexandria U.S. attorney’s office.
Kurz worked for A&O from September 2005 to November 2007, creating marketing materials for agents to distribute to potential investors, officials in the Alexandria U.S. attorney’s office say in the court filing.
In a statement filed with his plea agreement, Kurz says he conspired with other A&O executives to make false statements when selling interests in packages of life settlements.
A&O sold the settlements as bonded products, with a duration of 4 to 7 years, Kurz says.
Kurz says he helped prepare a number of misleading claims, including one that asserted the company sold “bonded” life settlements with a “guaranteed” annual return of 10% or 12%, with a possibility of even higher returns, according to court papers.
Kurz pleaded guilty before U.S. Magistrate Judge M. Hannah Lauck, in the U.S. District Court in Alexandria, Va., to one count of conspiracy to commit mail fraud and money laundering. He faces up to 5 years in prison and a $250,000 fine when sentenced, officials say.
A sentencing date has not yet been set, Kurz’s attorney says.
Investors in 38 states and Canada paid about $100 million from 2005 to January 2008 for settlements sold by A&O, according to the indictment, relying on what officials call “material misrepresentations and omission by Kurz and his coconspirators.”
According to a separate grand jury indictment against A&O’s owners and other defendants, the company’s principals used much of the cash received from investors for their personal use or to pay commissions to sales agents rather than to pay premiums for life settlements.
Among the claims A&O made was that it with had purchased a reinsurance bond so that it could guarantee the life settlements against longevity risk, according to the indictment. If the insured lived longer than the investment term, ranging from 4 to 7 years, the reinsurer would pay the minimum rate of return and take over ownership of the underlying insurance policy, according to the indictment.
If premiums were not paid on a settled policy, the reinsurance would not be valid, officials say in the indictment.
Five individuals were charged in the case, including Christian M. Allmendinger, Adley Abdulwahab and Brent Oncale, part owners of the firm, along with the president of A&O and an attorney who provided legal guidance to the firm.
Among other allegations, the principals are charged with representing that A&O had offices in several large cities and as many as 250 employees. The company had 4 employees, and the employees were all in the Houston office, officials say.
The indictment also charges that Abdulwahab and Oncale tried to sell A&O to an offshore company in Nevis, West Indies, in a “sham sales transaction.” The Nevis company was actually owned by Abdulwahab and Oncale, according to the indictment, and the fake sale was designed to limit regulatory scrutiny by allowing the executives to claim they no longer owned A&O, the indictment charges.
All of the defendants except for Kurz have pleaded not guilty.
Allmendinger’s attorney — Barry Pollack of Miller & Chevalier Chartered, Washington — says his client entered a plea of not guilty before Payne Oct. 21.
“Mr. Allmendinger vehemently disagrees with the government’s contention that he intended to defraud people who did business with his company and will contest the charges against him,” Pollack says.
Attorneys for Kurz and Abdulwahab had no comment.
An attorney for Oncale was not immediately available to comment on the case.
The A&O investigation was conducted by the U.S. Postal Inspection Service, the Internal Revenue Service and the Federal Bureau of Investigation, with assistance from the Texas State Securities Board, Alexandria U.S. attorney’s office officials say.
The investigation was coordinated by the Virginia Financial and Securities Fraud Task Force, an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.