Home > Retail Bank Customers Continue to Get Ripped Off By...

Retail Bank Customers Continue to Get Ripped Off By Their Bank's Brokerage Firm.

June 22, 2010

Banks Continue to Bilk Unsuspecting Investment Customers

Banks do not want to be in the banking business. It is too risky. Banks, through their broker-dealer affiliates, would rather earn fees and commissions from the sale of investment products to consumers, where all the risk is passed along to the customer.

Customers owning Certificates of Deposit, money market accounts, or even interest bearing checking accounts with material balances, will get a call from an individual associated with their "bank," a financial consultant, who wants to show you how you can get higher returns on your money.

Customers seeking to open new accounts are also prime targets for steering to these financial consultants to be sold super high commission generating variable annuities, proprietary mutual funds, structured products, high mark-up long term bonds, and the underwritings of the securities of troubled financial institutions.

In my own bank lobby, PNC Bank, behind the tellers exists a display board showing how many such "referrals" were made and accounts opened as the result of bank employees steering customers to a financial consultant to open a brokerage account. On certainly a weekly basis, or whenever I am in my bank, I can see a Series 7 stockbroker, i.e. financial consultant, pitch some poor unsuspecting customer as to why they should purchase some proprietary mutual fund.

Nowadays most platform tellers are dual employees of the bank and are also Series 6 registered with the bank’s broker dealer. Although Series 6 registered representatives are only permitted to sell mutual funds or investment company shares, often most banks also have a Series 7 registered representative, who travels among several branches pitching bank customers annuities and other high ticket items.

Over the last few decades, we have represented too many of these unsuspecting individuals in claims against these institutions. Without revealing any confidences, one of the most memorable cases involved a West African immigrant, who worked for minimum wage in the food service business at the Philadelphia Airport. On a bus trip to visit one of his friends in Baltimore, he was injured in a serious bus accident, and later made a sizable civil recovery or settlement.

However, upon leaving his lawyer’s office with the settlement check, he also had the misfortune of wandering into the largest flagship branch office of a major international bank, (a name he had recognized from old country), where 80% of his assets were placed into an annuity and a collection of high risk proprietary mutual funds, which lost more than half their value in eight months.

In three other cases we filed recently, all against the same bank, but involving different branches and different customers, in different parts of the country, customers seeking to merely open savings accounts or purchase CDs, were steered to "financial consultants," who sold them high risk and high expense Class B mutual funds, the offerings of the preferred securities of troubled financial institutions, such as FannieMae and FreddieMac, or variable annuities.

In one unrelated case, a customer was convinced to invest several million dollars in a high risk, junk quality tax free municipal bond fund, under the pretext it was a tax free money market fund. As a result of that one transaction, the broker earned more than $20,000 in commissions, and was scheduled to enjoy 12b-1 fees or trailers in excess of $5,000 per year, as long as the customer continued to own this security (which coincidentally lost more than 40% of its value).

Accordingly, it was very refreshing to learn today that The Massachusetts Securities Division filed an administrative action against Banc of America Investment Services, charging it with misrepresentations in the sale of Fannie Mae and Freddie Mac Bonds.

According to the complaint, in a desperate attempt to save the money from leaving the Bank of America family, a dual employee of the Bank and Bank American Investment Services "pitched"

certain Fannie Mae and Freddie Mac Bonds, as guaranteed by the U.S. government.

The case involves Reggie Cajigal Aquino, a premier client manager with Bank of America, N.A., and John Patrick Keating. Mr. Aquino, the dual employee of Bank American Investment Services and Bank of America, called a bank customer over the phone on June 23, 2008 to let him know that his $2,000,000 worth of Certificates of Deposit ("CDs") were coming up for renewal on July 4, 2008.

In response to the investor’s fears of losing his money, Keating and Aquino made unfounded representations that investor’s principal and interest in the Fannie Mae and Freddie Mac federal agency step-up bonds were guaranteed by the U.S. government.

The two also provided the investor with a false and misleading, for internal use only document, equating a rating on the bond being the equivalent of FDIC insurance.

The bonds were sold with a $5,000 markup, and in addition to Keating receiving a commission, his banking partner indirectly was compensated. Keating testified that if the bank, in this case the dual employee Aquino, introduced a client to him that part of his commission, between five percent (5%) and ten percent (10%) was kicked back to Bank of America.

Interestingly enough, notwithstanding the customer’s expressed intolerance for risk and the fear of losing his principal, it was also found that the new account documentation, which appears to have been partially completed, after the investor signed it, incorrectly showed the investor’s primary investment objective as higher risk or "appreciation."

Even through Keating and Aquino had violated the firms compliance rules, and engaged in deceptive sales practices, both were applauded by Bank America Investment Service’s management and their efforts considered it a success story of retaining assets within Bank of America and its indirect subsidiary.

Nicholas J. Guiliano, Esquire is a securities lawyer in Philadelphia, Pennsylvania. His practice is limited to the representation on investors in claims against brokerage firms and investment professionals for fraud, the sale of unsuitable securities, breach of fiduciary duty and the failure to supervise. For more information, visit our website at www.securitiesarbitrations.com or call (877) SEC-ATTY.

Related Information:

• Massachusetts Action Against Bank America Investment Services (PDF)