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For Immediate Release:  
For Further Information Contact:
September 9, 2005

Office of The Attorney General
- Peter C. Harvey, Attorney General
Division of Criminal Justice
- Vaughn L. McKoy, Director

 

John R. Hagerty
609-984-1936

 

American Express Financial Advisor Sentenced to State Prison & Ordered to Pay $400,000 after Pleading Guilty to Theft of Investor Funds
Firm Previously Agreed to Pay $5 Million For Failing to Supervise Financial Advisers

TRENTON – Attorney General Peter C. Harvey today announced that a former American Express Financial Advisor has been sentenced to three years in state prison and ordered to repay his former employer more than $400,000 after pleading guilty in Camden County Superior Court to a charge of theft by deception. Additionally, the advisor’s former employer, American Express Financial Advisors (AEFA), previously agreed to pay the State of New Jersey a civil penalty of $5 million and to implement company-wide reforms to address allegations that it failed to reasonably supervise its financial advisers.

According to Vaughn L. McKoy, Director, Division of Criminal Justice, Arthur Davidson, of West High Ridge Road, Cherry Hill, Camden County, was today sentenced by Camden County Superior Court Judge Samuel D. Natal to three years in state prison, ordered to pay $400,000 in restitution to AEFA, and to permanently forfeit any broker’s license. Davidson was remanded to the custody of the New Jersey Department of Corrections upon the conclusion of the sentence hearing.

Director McKoy noted that Davidson, a former financial adviser employed in AEFA’s Voorhees office, pleaded guilty on June 26 to a one-count Accusation which charged theft by deception. The Accusation alleged that Davidson stole more than $400,000 from at least 22 clients from June, 2001 through October, 2004. It was charged that Davidson forged client signatures on mutual fund redemption forms and financial advisory service agreements so as to liquidate investments in client accounts and withdraw commissions and fees without the client’s knowledge or consent. About 85 percent of the fraudulent charges to clients were withdrawn as commissions by Davidson for his personal use. Through the forgeries, Davidson charged certain

clients for multiple financial plans at excessive rates. For example, (1) an apartment manager in her mid-60s earning $44,000 per year with about $25,000 in assets at AEFA was charged $7,000 for four plans in a single year; (2) a retiree in her mid-60s earning $22,000 per year with about $10,000 in assets at AEFA was charged $3,500 for two plans in a single year; and (3) a recent college graduate in her early 20s earning $24,000 per year with $35,000 in assets at AEFA was charged $4,000 for two plans in a single year.

The allegations were initially uncovered by AEFA through an internal investigation and were reported to the New Jersey Bureau of Securities, which conducted its own investigation. The Bureau’s investigation quickly expanded with the uncovering of widespread problems involving AEFA’s failure to reasonably supervise financial advisers within its franchise offices. Under the settlement reached by the Attorney General, AEFA agreed to reform the way it supervises financial advisers and to increase oversight of financial advisory services to protect clients from misconduct by financial advisers.

“In investigating and prosecuting this individual, we identified a larger issue of inadequate supervision of the company’s financial advisers,” said Attorney General Harvey. “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.”

AEFA has since implemented a system that assigns an on-site supervisor where possible and eliminates the ability of a franchisee adviser to choose his or her own supervisor. Franchisee advisers now pay AEFA, not the supervisor, for the cost of supervision. Moreover, AEFA has eliminated in New Jersey a practice that allowed supervisors who had compliance responsibilities to also act as business consultants for the same financial advisers and receive additional fees in their business consulting role. Additionally, AEFA agreed by November 30 to, among other things, implement new training and surveillance procedures to better detect instances of forgery, unauthorized account activity and improper fees.

The investigation was conducted by the New Jersey Bureau of Securities Chief of Enforcement Richard Barry, Supervising Investigator Michael McElgunn, Regulatory Attorney Kevin O’Brien and Investigators Dick Smullen and Dean Kuehnen. Deputy Attorney General Anna Lascurain, Chief of the Securities Fraud Prosecution Section of the Division of Law, handled the regulatory case. The criminal prosecution was coordinated by Deputy Attorney General Michael LoGalbo, Division of Criminal Justice - Major Financial Crimes Bureau.

The Consent Order with AEFA is available via the Attorney General’s Web site at www.NJPublicSafety.com.


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