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Bar News - August 12, 2005 American Express Financial Advisors Must Pay $7.4 Million
A yearlong investigation of American Express Financial Advisors (AEFA) by the New Hampshire Bureau of Securities Regulation has culminated in a $7.4 million settlement with AMEX’s Minneapolis based investment advisor and securities brokerage firm. Marc Connelly, New Hampshire Securities Director, said the agreement was the largest enforcement action in the state’s history, surpassing the $5 million settlement with Tyco in 2002. “We hope this sends a strong signal to brokers and financial advisors operating in New Hampshire that the bureau is committed to preserving a level playing field for all investors, large and small….” In addition to paying the state $5 million in fines and penalties, American Express must pay up to $2 million to harmed New Hampshire investors and reimburse the New Hampshire Bureau of Securities Regulation $375,000 for costs associated with the lengthy investigation. The Bureau’s petition alleges that: • AEFA failed to disclose to New Hampshire clients conflicts of interest that permeated the company’s investment advisor relationship; • AEFA financial advisers operated in a system which pressured and rewarded them for selling American Express or AMEX partnered funds; • AEFA agents in New Hampshire used model portfolios that contained only American Express mutual funds, which in many cases under-performed other available products.
“New Hampshire investors were paying American Express financial advisors to evaluate their unique financial needs and design best possible portfolios accordingly,” Jeffrey D. Spill, Deputy Director in Charge of Enforcement for the Bureau, said. “What we found instead was a pervasive effort…to sell cookie-cutter plans heavily laden with American Express mutual funds, without disclosing to clients how this behavior financially benefited the company and its agents.” In addition to the fines, fees, restitution and reimbursement to be paid, American Express financial advisors will be required to retain an independent consultant to review practices and determine the amount to be paid to harmed New Hampshire investors.
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