TRENTON
– Attorney General Peter C. Harvey
today announced that a former American
Express Financial Advisor has been sentenced
to three years in state prison and ordered
to repay his former employer more than
$400,000 after pleading guilty in Camden
County Superior Court to a charge of theft
by deception. Additionally, the advisor’s
former employer, American Express Financial
Advisors (AEFA), previously agreed to
pay the State of New Jersey a civil penalty
of $5 million and to implement company-wide
reforms to address allegations that it
failed to reasonably supervise its financial
advisers.
According
to Vaughn L. McKoy, Director, Division
of Criminal Justice, Arthur Davidson,
of West High Ridge Road, Cherry Hill,
Camden County, was today sentenced by
Camden County Superior Court Judge Samuel
D. Natal to three years in state prison,
ordered to pay $400,000 in restitution
to AEFA, and to permanently forfeit any
broker’s license. Davidson was remanded
to the custody of the New Jersey Department
of Corrections upon the conclusion of
the sentence hearing.
Director
McKoy noted that Davidson, a former financial
adviser employed in AEFA’s Voorhees
office, pleaded guilty on June 26 to a
one-count Accusation which charged theft
by deception. The Accusation alleged that
Davidson stole more than $400,000 from
at least 22 clients from June, 2001 through
October, 2004. It was charged that Davidson
forged client signatures on mutual fund
redemption forms and financial advisory
service agreements so as to liquidate
investments in client accounts and withdraw
commissions and fees without the client’s
knowledge or consent. About 85 percent
of the fraudulent charges to clients were
withdrawn as commissions by Davidson for
his personal use. Through the forgeries,
Davidson charged certain
clients
for multiple financial plans at excessive
rates. For example, (1) an apartment manager
in her mid-60s earning $44,000 per year
with about $25,000 in assets at AEFA was
charged $7,000 for four plans in a single
year; (2) a retiree in her mid-60s earning
$22,000 per year with about $10,000 in
assets at AEFA was charged $3,500 for
two plans in a single year; and (3) a
recent college graduate in her early 20s
earning $24,000 per year with $35,000
in assets at AEFA was charged $4,000 for
two plans in a single year.
The
allegations were initially uncovered by
AEFA through an internal investigation
and were reported to the New Jersey Bureau
of Securities, which conducted its own
investigation. The Bureau’s investigation
quickly expanded with the uncovering of
widespread problems involving AEFA’s
failure to reasonably supervise financial
advisers within its franchise offices.
Under the settlement reached by the Attorney
General, AEFA agreed to reform the way
it supervises financial advisers and to
increase oversight of financial advisory
services to protect clients from misconduct
by financial advisers.
“In
investigating and prosecuting this individual,
we identified a larger issue of inadequate
supervision of the company’s financial
advisers,” said Attorney General
Harvey. “To its credit, American
Express has worked cooperatively with
our office to address deficiencies in
its oversight of financial advisers. Our
shared goal is to ensure that investors
who rely on the American Express brand
are treated fairly and that American Express
supervises its agents so that investors’
dollars are protected.”
AEFA
has since implemented a system that assigns
an on-site supervisor where possible and
eliminates the ability of a franchisee
adviser to choose his or her own supervisor.
Franchisee advisers now pay AEFA, not
the supervisor, for the cost of supervision.
Moreover, AEFA has eliminated in New Jersey
a practice that allowed supervisors who
had compliance responsibilities to also
act as business consultants for the same
financial advisers and receive additional
fees in their business consulting role.
Additionally, AEFA agreed by November
30 to, among other things, implement new
training and surveillance procedures to
better detect instances of forgery, unauthorized
account activity and improper fees.
The
investigation was conducted by the New
Jersey Bureau of Securities Chief of Enforcement
Richard Barry, Supervising Investigator
Michael McElgunn, Regulatory Attorney
Kevin O’Brien and Investigators
Dick Smullen and Dean Kuehnen. Deputy
Attorney General Anna Lascurain, Chief
of the Securities Fraud Prosecution Section
of the Division of Law, handled the regulatory
case. The criminal prosecution was coordinated
by Deputy Attorney General Michael LoGalbo,
Division of Criminal Justice - Major Financial
Crimes Bureau.
The
Consent Order with AEFA is available via
the Attorney General’s Web site
at www.NJPublicSafety.com.
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