New Scandal in Texas

After a series of scandals in 1954, Texas finally got fed up with the worst insurance regulations in the nation, passed 23 new laws to plug loopholes. Last week, for all its trouble, Texas was rocked by the worst scandal in the state's checkered insurance history.

One of its biggest insurance companies, U.S. (for "United Services") Trust & Guaranty, was padlocked by the courts, and 128,000 investors and policy holders, mostly in low-income groups, were faced with a loss of more than $5,000,000. Said Texas Insurance Commission Chairman Garland F. Smith: "I don't know any bankruptcy in the history of Texas that will affect more people. It's hard to sleep, thinking about those people who lost their money."

But victims thought Smith and the commission had been dozing for months while the company's troubles piled up. It was founded by Albert Benton Shoemake, 59, a Waco insurance promoter, who had gone broke with another insurance company in 1938. In 1945 he founded U.S. Trust & Guaranty under an old Texas law that permitted him to charter an insurance company to handle some banking too, thereby duck regular bank-examiners' inspections. His insurance charter should have been issued only after he filed articles of incorporation with the secretary of state. But U.S. Trust & Guaranty never took out a corporate license. Shoemake promised 5% returns on "certified drafts," claimed that these deposits were 100% backed with cash reserves and investments. To plug his company, he hired Columnist Drew Pearson on TV ("You can put your trust in U.S. Trust"). Last June, the insurance commission discovered that U.S. Trust & Guaranty could not account for $300,000 of funds taken in. Furthermore, it was $1.5 million in the red. Rather than expose the company's condition and bring on a run by depositors, the commission quietly told Shoemake to put his business in order.

Instead, charged the commission, Shoemake set up the Arkansas Fire and Marine Insurance Co., fed it some of U.S. Trust & Guaranty's assets. Last week, as the Texas attorney general threw U.S. Trust & Guaranty into temporary receivership, he charged Shoemake with "manipulating accounts to create a false appearance of solvency," and turned up with a shocking fact: while the State Insurance Commission waited for Shoemake to tidy up his business, more than $4,000,000 had disappeared, and the company was now $5,000,000 in the red.

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