Doing nothing can cost you plenty: A lawsuit-inspired case study

"First, doing business ethically always demands careful balancing of the concerns of multiple constituencies. Here, we have the needs of a marketing intermediary, the agent, the ultimate consumer, and the life insurance companies all vying to be heard and resolved fairly. Unfortunately, it appears as if [the MGA] failed miserably at achieving an equitable balance," McCarty said.

"Problem is, [the MGA] tiled the balance so far in the direction of serving its own interests (and that of its contracted producers) that it failed to act to protect the [brothers] against [the agent's] predatory actions or to protect the interests of [the carriers]," McCarty continued.

McCarty said he thinks the problem may well have preceded the notice the MGA received about the agent's behavior. "Most financial predators just don't emerge full blown from the brow of Zeus. They exhibit bad conduct for years, leaving a trail of complaints that regulatory systems fail to adequately identify or address," McCarty said. "Had [the MGA] done adequate due diligence, I'd be willing to bet they would have uncovered problems and could have rightly decided not to contract with [the agent]."

Once they did, another ethical question, McCarty said, is whether the MGA tolerated inappropriate sales practices. "Had there been signs of egregious self-dealing to which [the MGA cast a blind eye? The fact that [the MGA] received a tip-off letter suggesting as much tells me problems already existed, but [the MGA] never took them seriously," McCarty said.

"When everything hit the fan, [the MGA] made the fateful decision to not report the matter to authorities, to the [brothers], to other clients [of the agent], or to the insurers. Perhaps they wrongly believed they bore no responsibility for [the agent's] crimes or maybe they were blinded by [the agent's] financial contribution to the agency. Either way, their decision not to raise a red flag was ethically dubious, flying in the face of all notions of fairness, justice, and transparency," McCarty said. "How they made—and could later justify—this decision is frankly a mystery to me. Even more troubling is the fact they had another two years to rethink the decision before [the agent's] arrest. Again, they failed to do the right thing for any of the parties involved."

McCarty had one more point to add regarding the case. In financial services, an industry in which trust plays such a large part, a company's ethics are only as good as the ethics of all its partners.

"Unfortunately, [the MGA's] failure to report and cast out [the agent] spawned the lawsuit and presumably a ton of negative press. When it decided to do business—and keep doing business—with [the agent], [the MGA] basically emptied a mud pail on its good name and reputation." McCarty said. "Thanks to the Internet's eternal memory, it will never be able to wash out the dirt."