New Jersey's Attorney General, Peter C. Harvey , has reached an agreement with American Express Financial Advisors (AEFA) over allegations that the company failed to reasonably supervise its financial advisers. The case involved a New Jersey broker named Arthur Davidson, who stole over $400,000 from at least 22 clients. Davidson has pleaded guilty to charges of theft by deception.
"In investigating and prosecuting this individual, we identified a larger issue of inadequate supervision of the company's financial advisers," Harvey said. "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."
The investigation began when AEFA discovered Davidson's conduct as part of an internal process, at which point the company notified the Bureau of Securities. The bulk of the theft took place when Davidson withdrew commissions and fees without customers' knowledge or consent. Davidson forged victims' signatures on mutual fund redemption forms and financial advisory service agreements, often charging individuals for multiple financial plans during a year, resulting in charges of as much as 35% of clients' liquid assets.
AEFA has already compensated Davidson's known victims, and has committed to also paying any additional victims that are found, in addition to a $5 million penalty to the New Jersey Bureau of Securities.
The investigation also uncovered problems in the supervisory procedures intended to detect and prevent such fraud, especially in the area of conflict of interest. The Bureau of Securities discovered that AEFA franchise advisors could choose a compliance supervisor and paid these supervisors directly. The company has stopped this practice in New Jersey and has agreed to implement new procedures by the end of November that are designed to better detect forgeries, unauthorized account activity and improper fees.
