Ameriprise to pay state $3.8m over practices
Ameriprise Financial Inc. has agreed to pay the state $3.8 million to settle allegations that its Portsmouth agents forged clients’ signatures to cut corners and increase their income.
The New Hampshire Bureau of Securities Regulations said it also has banned the regional head of Ameriprise, Larry Post – citing his “cavalier attitude about forgery” – from engaging in securities activities in New Hampshire for five years.
Bureau Director Mark Connolly said that cutting corners is part of a national problem at the Fortune 500 financial advisory firm, which – according to its 2007 annual report – controlled some $480 billion in assets, generated $8.7 billion in revenue and posted a net income of $814 million.
“What we found was there was too much emphasis on sales at the expense of client services,” said Connolly. “These forgeries represent a fundamental breakdown in control of operations. They have taken substantial steps, but they need to do more.”
Benjamin Pratt said the firm couldn’t comment on “conversations with other regulators” but did agree that it has taken “significant steps, and we are totally committed to very strong compliance policies and the oversight of our advisers.”
Pratt added that the company did “discipline six advisers and made restitutions where appropriate.”
This is Ameriprise’s second legal run-in with the Securities Bureau, bringing the firm’s tab to more than $10 million. The last consent order, in 2005, cost the American Express spin-off nearly $7.4 million to settle allegations that its agents sold financial plans heavily weighted with American Express funds – at the company’s urging – without disclosing to clients that the agents would get extra compensation for doing so.
As part of that consent order, the firm promised to heighten supervision of its New England office and promised to tell the bureau if it found any other misdeeds, especially involving training and fraud.
The company did internally investigate some 96 instances of forgery by six of its financial advisers in the Portsmouth office, according to the consent order. Agents would state that they were “taking a 10-minute trip to Kennebunkport” as a code for forging a signature rather than travel to the client or to wait until he or she came in, charged the bureau.
One agent allegedly said this was all “part of the training culture” in the office.
In that investigation, an Ameriprise representative at the Portsmouth office “admitted that he destroyed documents from his client files which contained his non-authentic signature.”
As an apparent result of the investigation, two advisers were terminated, three disciplined and another agent quit while under investigation. Ameriprise did notify the National Association of Securities Dealers, but did not tell the Bureau about the forgeries and training issues in a report in December 2006, placing the company in “boldfaced contempt” of the consent order for 276 days
In addition to the alleged forgeries in Portsmouth, Larry Post – the group or field vice president who directs the region encompassing New Hampshire from the company’s Boston office – required staff to close out financial plans that hadn’t been delivered to them within the allowable time frame, which would have entitled the customers a refund if so desired. This “false recordkeeping” artificially inflated sales volume, according to the bureau.
Ameriprise’s internal investigation faulted Post for “serious gaps in compliance” with the company’s supervision plan.
Three “red flag behaviors” by Post were identified:
•Tipping off an adviser in Massachusetts who also was being investigated for potential forgery.
• The forging of Post’s signature, as well as the advisers, on documents submitted to the corporate parent for compensation.
• Directing a staff person to print his name on an internal form in order to be in compliance with New Hampshire law regarding supervisory signatures.
In its consent order, the bureau went on to say that Post promoted the sales culture that partly led to the Portsmouth forgeries.
Of the $3.8 million, $3.25 million will be paid to the bureau as an administrative fine – half now and half on Jan. 1. Another $250,000 will reimburse the bureau’s investigation (with half going to the North American Securities Administrations Association for assisting the bureau).
Some $334,000 was actually already paid under the 2005 agreement. In addition, the company must submit a written report on additional compliance.