Ameriprise CEO impersonation case tests advisor fraud responsibility
The man who said he was Ameriprise CEO Jim Cracchiolo told the client that two checks for $250,000 apiece were on the way, according to a lawsuit. The executive also assured the client that his advisor would have the checks.
Problem was, it almost certainly wasn’t Cracchiolo on the phone. And the client, Mark Donelson, had received five years of other calls from apparent impersonators who promised checks that never arrived, according to the potential class action case filed against the advisor, Mark J. Sachse and Ameriprise.
“This is Jim. I’ve been talking with Mr. Sachse, trying to call you on your other number. But I’m gonna be in a meeting soon, and so I wanted to give you a quick call,” the man said in the February 2018 conversation. “The statement’s gone, and as soon as it’s downloadable, which will be tomorrow, Sachse’s gonna print that out and bring it to ya and bring everything else.”
The caller — who, two days later, was still promising Donelson hundreds of thousands of dollars worth of checks — could have been Sachse, a conspirator or maybe even the CEO himself, according to the lawsuit, which doesn’t name or suggest the true identity. What’s more, other Ameriprise employees who Donelson says had been pledging to send huge checks were making false statements or not who they claimed to be either, the lawsuit states.
“You probably have never seen worse conduct by an advisor than this,” says Donelson’s attorney, James F.B. Daniels of McDowell Rice Smith & Buchanan. “It's a nightmare.”
Donelson and his legal counsel informed Ameriprise in writing of the bizarre scenario that followed his simple instruction not to make any trades on margin. The firm terminated Sachse two weeks later, according to FINRA BrokerCheck. With the case stalled at a fork in the road in the Western District of Missouri, it’s also emerging as a notable legal test in advisor fraud cases.
The case alleges securities fraud, breaches of fiduciary duty and other violations by Sachse, Ameriprise, Cracchiolo and three other actual Ameriprise executives based on churning, impersonations, unauthorized trading, misrepresentations and other harmful conduct.
The lawyers representing Sachse in Donelson’s case didn’t respond to requests for comment.
Ameriprise spokeswoman Kathleen McClung said in an email that the firm fired Sachse “for violating our company policies and code of conduct,” and said the lawsuit is meritless.
“It contains false allegations made by one client regarding appropriate and profitable investments recommended to that client,” McClung said. “It is improperly alleged to be a class action, and accordingly, we filed an appropriate appeal to strike the class action allegations from the complaint.”
A STAFFER NAMED ‘TRYG NEDERLOE’
Donelson, 59, has been an employee of Walmart subsidiary Sam’s Club for nearly 30 years, he said in an affidavit filed last year. He currently works as a so-called picker filling orders overnight at a big box store location in the Kansas City suburb of Gladstone.
“I told Sachse that under no circumstances was he to trade any securities in or for my account on margin,” Donelson said. “Sachse told me that he simply had to check a margin box in the application as a ‘formality’ but that he would not in fact trade any securities for me on margin.”
Two years later, though, Donelson says he noticed margin trades in his account statements. Sachse said he would “take care of it,” but he still hadn’t done so by the following year, according to the complaint. The account started loading up on margin trades in a dizzying series of transactions that Donelson alleges occurred as the home-office employees began calling him.
Donelson’s concerns about the trades and disparities in his statements led to the company seeming to promise him payments of tens of thousands of dollars and then hundreds of thousands for his troubles, the complaint states. Donelson believed what he was hearing for about years before he became suspicious and recorded the calls in 2018, his lawyer says.
Other than the person identifying himself as Cracchiolo, Donelson says he had previously spoken with accounting department employee Ted Brail, a staffer named Tryg Nederloe, an attorney going by Ron Lyle and self-described Ameriprise “bean counter” Ted Trimble.
“‘Don't pay any mind to those monthly statements,’” Daniels says, describing the type of messages the client was receiving over those five years. “‘We've got a computer program changing over. You've got much more in it than it shows on paper.’ He believed all that.”
The $450,000 listed as the requested damages on Sachse’s BrokerCheck file only represents a “placeholder” for an amount likely closer to $2 million dollars, according to Daniels. In addition to the termination and bar by FINRA, Sachse’s file lists a pending bankruptcy case from November 2015 and a tax lien for $133,000 in 2006. He was also disbarred as a lawyer in Kansas in 2007.
Sachse had surrendered his law license after legal clients filed 17 complaints against him, according to the complaint. He entrusted his savings to Sachse without knowing anything about his previous career as a lawyer, the complaint states.
In another alleged omission in 2010 when Sachse left Baird to affiliate with Ameriprise, Donelson says that his advisor filled out his account application without explaining it or his brokerage agreement, giving him a copy of either document or letting him read them.
Instead, Donelson signed the application where Sachse told him to, and all they discussed was trading on margin, the client said in the affidavit.
CAN AMERIPRISE COMPEL ARBITRATION?
In a lawsuit seeking class action certification, Donelson’s troubling case is also testing whether his allegations are subject to arbitration.
Ameriprise is slated to submit briefs next month in its appeal of a December ruling against its motions to compel FINRA arbitration of the case. Just as the lawsuit was starting to wind its way through the courts, another barred and terminated ex-Ameriprise advisor received an 11-year prison sentence after pleading guilty to defrauding 20 clients for more than $8 million.
The outcome of one legal saga and opening stages of another display two parts of the cycle of advisor fraud cases across the industry. Ameriprise is choosing not to end that process with a settlement in Donelson’s case even though it “cries out” for one, according to Daniels.
He cites the fact that the firm noted allegations of “impersonation of home office personnel and providing misleading information to a client” on BrokerCheck when it fired him in 2018.
“Did he do it all himself or did he have conspirators? We don't know,” Daniels says. “There are a number of ways you could count the damages.”
The case is currently paused for Ameriprise’s appeal. In a Dec. 3 ruling, U.S. District Judge Howard Sachs rejected its motions to compel arbitration and strike the class action. Donelson can seek class action certification for himself and other ex-Sachse clients because some of the allegations are “broader and not necessarily unique to Donelson,” the judge wrote in the decision.
Sachs also found that the case couldn’t be dismissed on the grounds that Cracchiolo and the other executives weren’t involved. It includes both indirect and “specific allegations” that “Cracchiolo was actively involved in the mishandling of his account,” Sachse wrote. And the judge ruled that Donelson hadn’t knowingly agreed to the arbitration provision of the agreement.
Donelson’s signature alone is not “a specific agreement to arbitrate when the arbitration provisions are found in another unidentified document which is unsigned and undated,” Sachs wrote. “Defendants do not deny that Donelson was not shown the account application or client agreement, and that Sachse filled out the application without showing it to Donelson.”
On Feb. 12, the Eighth Circuit Court of Appeals denied Daniels’ motion to dismiss the firm’s appeal. Ameriprise and the five other defendants are due to submit their briefs March 11 to the appellate court to make their case for overturning the district court’s ruling.
The company points out that the case in Missouri is separate and unrelated to the sentencing in late January of another ex-Ameriprise advisor out of California fired by the firm in 2015. Ameriprise is also one of many publicly traded wealth management companies citing the difficulty of catching and stopping advisor misconduct as a risk area in its annual reports.
Ex-advisor Li Lin Hsu pleaded guilty in February 2019 to one count of wire fraud in connection with a Ponzi scheme targeting some of her own relatives. Hsu used her clients’ money to buy homes, a Tesla car, a vacation to Paris, assorted luxury items and to make payments to other clients, according to prosecutors in California’s Central District.
She “independently engaged in criminal activity against members of her community,” McClung, Ameriprise’s spokeswoman, said in an emailed statement. “She diverted funds and investments away from our firm to circumvent our supervisory system in order to hide her misconduct. Upon detection of her misconduct, we immediately investigated, suspended and reported her to the proper authorities, who subsequently prosecuted her.”
Hsu received credit for nearly two years of time served after the FBI arrested her in April 2018 over additional allegations that she told witnesses to lie to investigators, according to her defense attorney, Kate Corrigan of Corrigan Welbourn and Stokke.
Along with the victim impact statements at the sentencing hearing, Hsu discussed how she spent the time taking classes about cognitive thinking, empathy and faith, Corrigan says. Ameriprise has paid $775,000 in settlements to former clients who filed arbitration cases, according to FINRA BrokerCheck. The court ordered Hsu to pay $5.3 million in restitution.
Hsu helped the government identify assets to abide by her plea agreement and help ensure victims recover their losses, Corrigan says. “She unfortunately took a turn in her life that she took responsibility for,” the lawyer added.
Ameriprise’s Advice and Wealth Management unit’s pretax adjusted operating earnings grew by 9% in 2019 to $1.51 billion, according to the annual report it filed on Feb. 26. While the firm doesn’t break out legal costs from its general and administrative expenses, the company “discloses the nature of the contingency” if there could be material impact, the report says.
“Misconduct by our employees and advisors is difficult to detect and deter and could harm our business, results of operations or financial condition,” it says. The misconduct could also “result in violations of law, regulatory sanctions and/or serious reputational or financial harm.”