In Focus

hame on A.G. Edwards and American Express Financial Advisors! Regulators fined each of the firms for large-scale customer deception.

For A.G. Edwards, the NYSE imposed a $400,000 fine for a host of violations, most notably the sale of $3.5 billion of "callable CD's" to 125,000 customers, by misrepresenting the risks of those products. About 400 customers complained, mostly elderly customers seeking fixed income, safe investments. The firm has settled only about half of the claims, paying around $2 million. That's a small fraction of the revenue generated from sales of the product (the firm bought the product at a 1.25% discount from par). For a discussion of the substantial risks of these investments, see our article entitled, "Brokered CDs: A Trap for the Unwary."

Also in the spotlight is American Express Financial Advisors. The NASD fined the firm $350,000 in connection with selling variable annuities into already-tax deferred retirement accounts such as IRAs and 401(k) plans. The firm and its brokers failed to advise of numerous material facts, including the fact that variable annuities do not provide a tax benefit or advantage of tax-deferred earnings when they are purchased for such retirement plans.

— James J. Eccleston
FinancialCounsel.com