ABOUT BROKER FRAUD BLOG

BP Securities Lawsuits Heading to Houston

By now I am sure that everyone knows about the thousands of claims BP is facing over property damage and loss of income resulting from the massive oil spill that released millions of gallons oil into the Gulf of Mexico, but my guess is that far fewer are aware of another large group of lawsuits BP is facing over losses suffered by investors and employees who took big hits their portfolios as BP stock prices plummeted following the spill.

The lawsuits allege that BP knew the rig was unsafe and made attempts to downplay the spill so that shares would be purchased at an inflated price.

This host of suits has been consolidated to Houston under U.S. district Judge Keith P. Ellison. Ellison will heart civil securities fraud claims, shareholder derivative actions, and claims from BP employees who have taken loses to their retirement plans. All cases falling outside of the securities realm will be transferred to New Orleans.

Some experts believe securities lawsuits may actually end costing BP more than economic loss claims when all is said and done.

BP has reportedly aside $32.2 billion to for spill costs and to pay legal claims, in addition to the $20 billion in the claim fund, but many believe cost will easily exceed this $52.2 billion threshold.

PROTECTING YOUR NEST EGG -- VIDEO

PLEASE VIEW THIS IMPORTANT VIDEO ON PROTECTING YOUR NEST EGG!!!

THANKS TO CHARLES HUNTER, ESQ., AND JUVEN CANO FOR PUTTING THIS VIDEO TOGETHER FOR THE HAYES LAW FIRM!

For those who cannot open the video, click here to download Quicktime: http://www.apple.com/quicktime/download/ 

Download the_hayes_law_firm_nest_egg_ad_cdquality.mov

THE HAYES LAW FIRM, www.dhayeslaw.com, 1-866-332-3567 (toll free)

email Lawrence C. Melton, Esq. at lmelton@dhayeslaw.com

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CONGRESS INTRODUCES "401(K) FAIR DISCLOSURE FOR RETIREMENT SECURITY ACT OF 2007"

HIDDEN FEES IN 401(K) ARE EATING INTO THE RETIREMENT SAVINGS OF MILLIONS OF AMERICANS

by Lawrence Melton, Esq. lmelton@dhayeslaw.com

THE HAYES LAW FIRM, www.dhayeslaw.com 1-866-332-3567

George Miller, democratic congressman from California and chairman of the House Education and Labor Committee, announced he is introducing the "401(k) Fair Disclosure for Retirement Security Act of 2007."  According to InvestmentNews.com, "The bill would require plan administrators to disclose all fees charged to plan participants each year; more detailed information on investment strategies, risks and returns when participants sign up for 401(k)s; as well as information on conflicts of interest and fees to employers who sponsor the plans."  (Sara hansard, 401(k) disclosure legislation introduced, InvestmentNews.com, July 31, 2007).

http://www.InvestmentNews.com/apps/pbcs.dll/article?AID=200770730010

Currently, the Employee Retirement Income Security Act (ERISA) requires that 401(K) fees be reasonable, fully disclosed, and incurred solely for the benefit of plan participants.  The industry is generally not following this rule.  Here are some common problems.

EXCESSIVE FEES:  401(k) accounts are often held for decades and participants make only minimal changes in their fund choices.  Thus the high fees of a 401(k) account can deplete significant money from ones retirement savings.  USA Today provides an example:

Lets say you have 35 years until retirement, a 401(k) balance of $25,000 and an average 7% return on investments per year.  If fees shave a half-percentage point off returns, you'll have $227,000 at retirement (assuming you didn't contribute anything past the $25,000), according to the Labor Department.  By comparison, if fees cut into returns by 1.5 percentage points, you'd end up with $163,000.

(Kathy Chu, 401(k) Fees Can Chomp a Hole in Your Savings, USA Today, Nov. 10, 2006.)

To find out whether you are paying excessive fees look at your account statement, prospectus, summary plan description (SPD), annual report (Form 5500 series), and summary annual report.

UNDISCLOSED OR HIDDEN FEES:  Most investors don't know where to look.  Fees charged in 401(k) plans seem invisible.  Retirement plans use confusing are complex fee arrangements.  They often lump together administrative and fund management fees.  Investors searching for hidden fees feel like they are deciphering hieroglyphics. This in turn makes it harder to tell how much individual services cost. Earlier today, George Miller, Chairman of the House Education and Labor Committee said, "Hidden fees are eating into the retirement savings of millions of American workers without them knowing it." (Sara Hansard, 401(k) disclosure ligislation introduced, InvestmentNews.com, July 31, 2007).

FEES ASSESSED ON A FLAT PERCENTAGE:  This is a common problem.  The Wall Street Journal reports: "[C]ertain fees (such as those for record-keeping) are assessed as a flat percentage of assets, which means as an investor's savings grow, more money is being collected from them even though no additional services are provided."  Tom Lauricella, Fund Track: Up for Review: 401(k) Industry, Wall Street Journal, Dec. 28, 2006. 

PAY-TO-PLAY ARRANGEMENTS:  Some mutual-fund companies that run retirement plans take a portion of the money they collect from investors and use it to pay consultants.  The consultants, in turn, recommend which funds are included in a retirement plan.  Some consultants recommend only those fund companies that make such payments.  That is why these deals are pay-to-play arrangements.  The arrangement is basically a kickback.

TEACHERS SAY NEA RECIEVED KICKBACKS FOR RECOMMENDING HIGH-FEE ANNUITIES

NEA ALLEGEDLY FAILED TO DISCLOSE FINANCIAL INCENTIVE FOR RECOMMENDING HIGH-FEE ANNUITIES TO ITS TEACHER-MEMBERS.  DID THE NEA RECEIVE KICKBACKS?

by Lawrence C. Melton, Esq., lmelton@dhayeslaw.com

THE HAYES LAW FIRM, www.dhayeslaw.com

The New York Times says two teachers in Washington State have filed a case in federal court against the National Education Association, alleging that that N.E.A. received kickbacks for recommending high-fee annuities to its members.  (Gretchen Morgenson, Lawsuit Says Teachers Are Overcharged on Annuities, nytimes.com, July 17, 2007).  http://www.nytimes.com/2007/07/17/business/17suit.html?ref=busniess

The N.E.A. sponsors a retirement plan for its members.  The NEA membership consists primarily of teachers.  As part of the retirement plan, the N.E.A. recommended that its members purchase annuities from the Nationwide Life Insurance Company and the Security Benefit Group.  There apparently was a kickback agreement between the NEA and the two financial firms.  The law suit says Nationwide Life Insurance and Security Benefit Group paid the N.E.A. a fee, estimated at $2 million a year, to recommend their annuities.  This has not yet been proved.  (Gretchen Morgenson, Lawsuit Says Teachers Are Overcharged on Annuities, nytimes.com, July 17, 2007).

This is similar to the pay-to-play arrangements found in the 401K context:

PAY-TO-PLAY ARRANGEMENTS:  Some mutual-fund companies that run retirement plans take a portion of the money they collect from investors and use it to pay consultants.  The consultants, in turn, recommend which funds are included in a retirement plan.  Some consultants recommend only those fund companies that make such payments.  That is why these deals are pay-to-play arrangements.  The arrangement is basically a kickback.

ANNUITIES IMPOSE EXCESSIVE FEES THAT DEPLETE RETIREMENT:  The teachers are correct in arguing that annuities impose excess fees that most likely will deplete their retirement.  According the NASD NTM 04-45, variable annuities subject investors to the following fees or charges.

• Surrender Charges: paid by investor when he or she withdraws money from the annuity before a specified period. 
• Management Fees: assessed against the sub-accounts.
• Mortality and Expense Risk Charge: charged by the insurance company for the insurance risk it takes under the contract.
• Administrative Fees:  charged for record keeping and other administrative expenses.
• Underlying Fund Expenses: relating to investment options.
• Charges for Special Features and Riders: e.g., provisions for stepped-up death benefit or a guaranteed minimum income benefit.

The added expenses associated with variable annuities cannot be justified unless the annuity is held for an extended period of time.  It follows that variable annuities should not be sold to individuals who are retired or close to retirement. 

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THE "SOURCE CREDIBILITY" SCAM: FINANCIAL ADVISORS PRETEND TO BE EXPERTS BY USING PHONEY "OFFICIAL" TITLES

SENIORS BEWARE!

by Lawrence C. Melton, Esq., lmelton@dhayeslaw.com

THE HAYES LAW FIRM, www.dhayeslaw.com

(After the initial publication of the following blog, a representative of Certified Senior Advisors contacted me. He objected to my use of the term "phony" and said: "We are very clear--and have the only disclosure statement in the industry that underscores our position--that the CSA designation is a supplement, not a substitute, for a professional's other licenses, credentials and education. To suggest otherwise is inaccurate.")

Last Sunday the New York Times reported a growing trend in the securities and insurance industry.  Financial Advisors are now obtaining phony official-sounding titles in order to trick seniors citizens.  (See Charles Duhigg, Older Investors Swarmed by "Instant Experts").

A financial advisor working for an insurance company will pay a certain amount of money for a correspondence course to obtain an official sounding title.  The course might take a couple of days or maybe a couple of hours.  Then the advisor takes an easy multiple choice test and obtains the phony title.  (See Charles Duhigg, Older Investors Swarmed by "Instant Experts").

Earlier this year the NASD published NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors, available at www.nasd.com.  The benefit of this Investor Alert is that it classifies and labels the common tactics employed by brokers during a sales pitch.  One such tactic is the source credibility tactic:

The "Source Credibility" Tactic--trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience.  "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."

NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors.

The NY Times article provided a list of several of these phony titles to be on the look-out for:

Certified Senior Adviser

Certified Elder Planning Specialist

Registered Financial Gerontologist

Certified Retirement Financial Adviser

Certified Senior Adviser

(See Charles Duhigg, Older Investors Swarmed by "Instant Experts").

The financial advisor will use one of the above impressive-sounding titles to trick senior citizens into believing he has creditials and expertise.  In reality the advisor may be an inexperienced novice in this area who simply took a phoney on-line correspondence course.

Once the advisor has fooled the senior into believing he is an expert, the advisor will earn big commissions by placing the senior in a bad investment, such as a variable annuity.

When asked who the most common victim of securities fraud is, attorney Debra Hayes of The Hayes Law Firm said:

"It's typically the elderly, those that are retiring or are retired.  In this day and time, many, many people are retiring at the age of 55 and that's not what we would normally think of as elderly.  However, I would say that the victims tend to be from age 55 and up.  The common sentiment is that people hire a broker that they trust and then they rely on them and accept their recommendations.

Many employees that are retiring meet with a broker that their company chooses.  They're very trusting in that type of a situation and think, "Oh well, my company let this person speak to us, they must know that they're a good person.  They must know what they're talking about."

These brokers are extremely good salesmen, which is what they are, salesmen.  They really are not financial analyst, in my opinion, but they claim they are.  So again, those that fall victim to that the most often are 55 and over, retirees and elderly people."

      

If you have been the victim of securities fraud call THE HAYES LAW FIRM at 1-866-332-3567, and visit www.dhayeslaw.com email author of blog at lmelton@dhayeslaw.com BlogRankings.com

401(k) LAWSUITS: IS FIDELITY MANAGING YOUR RETIREMENT PLAN?

by Lawrence C. Melton, Esq., lmelton@dhayeslaw.com

THE HAYES LAW FIRM, www.dhayeslaw.com

Fidelity Investments, the nations largest retirement-plan manager, is currently involved in a lawsuit involving accusations of 401(k) mismanagement. The employees of Deere & Co., a farm equipment manager in Illinois, claim they were charged undisclosed and excessive fees in connection with their 401(k) plan.  Fidelity acts as trustee and record-keeper for the plan and manages the funds offered to the participants.  In December 2006 the employees filed in the US District Court Western District of Wisconsin, naming Fidelity Investments and Deere & Co. as co-defendants.  The employees complain of the following:

1. Excessive Fees
2. Indirect fees hidden in the plan structure. 
3. Undisclosed revenue-sharing. 
4. Excessive fees assessed on a flat percentage of the assets.
5. Failure to inform participants of a "long-standing agreement" with Fidelity to only choose Fidelity funds.   

This lawsuit is important because Fidelity manages 401(k) plans for a voluminous number of companies.  Here is a nonexclusive list of companies that use Fidelity as trustee and/or record keeper for its 401(k) plan.

1. Alliant Techsystems (ATK)
2. Rockwell Collins (COL)
3. CH2M Hill
4. HNI (HNI)
5. Thermo Electron (TMO)
6. FMC Technologies (FTI)
7. Bowater (BOW)
8. Valspar (VAL)
9. American Azle & Mfg. (AXL)
10. Western Gas Resources (WGR)

If you are an employee of any of the companies listed above, you should pay great attention to the assessment of fees in your 401(K).  You may have a legal cause of action.  Please call THE HAYES LAW FIRM at 1-866-332-3567 and visit www.dhayeslaw.com.

The Employee Retirement Income Security Act (ERISA) requires that 401(K) fees be reasonable, fully disclosed, and incurred solely for the benefit of plan participants.  The industry is generally not following this rule.  Here are some common problems.

EXCESSIVE FEES:  401(k) accounts are often held for decades and participants make only minimal changes in their fund choices.  Thus the high fees of a 401(k) account can deplete significant money from ones retirement savings.  USA Today provides an example:

Lets say you have 35 years until retirement, a 401(k) balance of $25,000 and an average 7% return on investments per year.  If fees shave a half-percentage point off returns, you'll have $227,000 at retirement (assuming you didn't contribute anything past the $25,000), according to the Labor Department.  By comparison, if fees cut into returns by 1.5 percentage points, you'd end up with $163,000.

Kathy Chu, 401(k) Fees Can Chomp a Hole in Your Savings, USA Today, Nov. 10, 2006. To find out whether you are paying excessive fees look at your account statement, prospectus, summary plan description (SPD), annual report (Form 5500 series), and summary annual report.

UNDISCLOSED OR HIDDEN FEES:  U.S.A. Today reports: "The fees charged in 401(k) plans are all but invisible to investors who don't know where to look.  Making matters more confusing are complex fee arrangements--common in retirement plans--that often lump together administrative and fund--management fees.  Regulators are studying whether these arrangements inflate retirement-plan fees by making it hard for you to figure out how much individual services cost."  Kathy Chu, 401(k) Fees Can Chomp a Hole in Your Savings, USA Today, Nov. 10, 2006.

FEES ASSESSED ON A FLAT PERCENTAGE:  This is a common problem.  The Wall Street Journal reports: "[C]ertain fees (such as those for record-keeping) are assessed as a flat percentage of assets, which means as an investor's savings grow, more money is being collected from them even though no additional services are provided."  Tom Lauricella, Fund Track: Up for Review: 401(k) Industry, Wall Street Journal, Dec. 28, 2006. 

PAY-TO-PLAY ARRANGEMENTS:  Some mutual-fund companies that run retirement plans take a portion of the money they collect from investors and use it to pay consultants.  The consultants, in turn, recommend which funds are included in a retirement plan.  Some consultants recommend only those fund companies that make such payments.  That is why these deals are pay-to-play arrangements.  The arrangement is basically a kickback.

If you believe your 401K was depleted by excessive fees and mismanagement, please contact THE HAYES LAW FIRM at 1-866-332-3567 and visit the web page www.dhayeslaw.com

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by Lawrence C. Melton, Esq., lmelton@dhayeslaw.com

THE HAYES LAW FIRM, www.dhayeslaw.com

Fidelity Investments, the nations largest retirement-plan manager, is currently involved in a lawsuit involving accusations of 401(k) mismanagement. The employees of Deere & Co., a farm equipment manager in Illinois, claim they were charged undisclosed and excessive fees in connection with their 401(k) plan.  Fidelity acts as trustee and record-keeper for the plan and manages the funds offered to the participants.  In December 2006 the employees filed in the US District Court Western District of Wisconsin, naming Fidelity Investments and Deere & Co. as co-defendants.  The employees complain of the following: