The American Express suit, filed in US District Court in Concord, New Hampshire, asks for a court injunction to keep New Hampshire officials from pursuing their complaint first announced in February, according to a Wall Street Journal report.
David Kanihan, a spokesman for American Express’s financial advisory business, told the newspaper that “the issues raised in this matter are covered by federal securities laws, and therefore we believe that a federal court is the appropriate jurisdiction” for the issue. The American Express suit also asserted that state regulation is blocked because disclosure is regulated by the US Securities and Exchange Commission (SEC) and that the state charges are “merely an attempt to artfully plead around what are, in fact and in substance, Federal disclosure claims under the Investment Advisers Act.”
Last month, New Hampshire‘s Bureau of Securities Regulation accused American Express Financial Advisors of defrauding customers by giving its brokers and advisers secret incentives to sell its weak-performing in-house mutual funds (See New Hampshire Hits Amex Advisor Unit with Fraud Charges ). The state said the actions violated state and federal securities laws that require advisors to act in clients’ best interests and to disclose conflicts.
Mark Connolly, the New Hampshire bureau’s director, told the Journal that he was surprised by American Express’s suit because most financial companies that “have been targets” of state regulators “have shown in general terms a willingness to be cooperative. Taking a pre-emptive move against the local cop on the beat surprised us, and we don’t think it’s constructive.”
Connolly said that regulation of fraud remained the jurisdiction of individual states even after the National Securities Market Improvement Act of 1996, which gave the SEC authority in most cases over national investment advisory firms.
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