Saturday, April 30, 2005

White Collar Crime is a Crime of Violence. Diane Francis

“..White-collar crime is a violent act. By my rough account, there have been at least half a dozen suicides by investors who are victimized and lost everything as a result of the Bre-X debacle. That's just the ones that came to my attention during a book research. How many people in other mining outfits lost their savings? How many marriages fail because of this? How many people lost their health because of the fraud? Or their houses and lifestyles? How many children's lives were affected? White-collar crime is violent because it mugs lives, livelihoods and self-esteem. That's why the American judges are correct in imposing tough sentences on these people. And yet no one has been charged or even investigated in Canada for Bre-X because the case would be too expensive for the cash-starved Mounties.... ” Source Diane Francis, “White collar crooks: U.S. hits them hard”, Financial Post, March 22, 2005 pgFP2[the Bre-X scandal cost investors an estimated $ 9 billion]

United States illegalities, sadly accepted in Canada

This article could apply to mutual fund and proprietary fund practices in Canada, also double dipping. Regulators still failing to enforce the simplest rules of fiduciary behavior in Canada. Class action lawyers might have to make it right.
New York Times


April 30, 2005
Mutual Fund Firm Is Fined; Will Repay $11 Million to InvestorsBy JENNY ANDERSON
addell & Reed, one of the country's oldest mutual fund companies, paid $16 million to settle charges brought by regulators saying that it fleeced investors by switching them into financial products that benefited the brokers and the company at the expense of investors.
NASD, the investment industry's regulatory organization, said Waddell & Reed, which settled the case less than a week before it was scheduled to go to trial, would pay a $5 million fine and provide up to $11 million in restitution to clients who responded to a company campaign to move their investments from one variable annuity to another.
The switch earned the brokers more fees and commissions but cost customers more, NASD said. The company, which is based in Overland Park, Kan., and has $38.2 billion in assets under management, will also pay a $2 million fine to state regulators. The company did not admit any wrongdoing.
"What was most troubling about the case is what a concerted and aggressive campaign it was on the part of the company," said Mary L. Schapiro, vice chairman of NASD. "There was little regard given to whether this was good for investors."
In a complaint filed in January 2004, NASD charged Waddell & Reed with violating rules that dictate the steps brokers must take to ensure that investments are suitable for clients. From January 2001 to August 2002, the firm tried to switch customers from variable annuities issued by the United Investors Life Insurance Company to similar annuities from the Nationwide Insurance Company, after Nationwide agreed to a fee-sharing agreement that would benefit the company's brokers and bottom line.
The switches cost investors almost $10 million in surrender charges - fees paid for exiting a variable annuity contract early.
The settlement imposes six-month suspensions and $150,000 fines on Robert Hechler, Waddell's former president, and Robert Williams, the former national sales manager who is now senior vice president for public affairs. Neither man admitted guilt.
"This is a positive step for Waddell & Reed, our financial advisers, our employees and our clients," said Keith A. Tucker, the firm's chief executive. "These matters date back several years and their removal as an issue is an important action."