Securities America and Broker Charged in Fraud Exxon Retirees

September 15, 2006 ( - NASD has announced that it has fined Securities America, Inc. of Omaha, Nebraska, $2.5 million for failing to supervise a broker who NASD claims misled Exxon Corporation employees.

According to a NASD news release, broker David McFadden has been charged with securities fraud. McFadden convinced Exxon employees to retire early by promising exaggerated returns on money transferred from their retirement plans into Securities America accounts. The company will have to also pay $13.8 million in restitution to 32 Exxon retirees, the news release said.

NASD said it found that McFadden developed and presented seminars directed at long-term Exxon employees who were generally between the ages of 50 and 60, during which he told attendees they could retire early by liquidating the assets of their company-sponsored retirement plans, depositing those assets in accounts with Securities America, and making investments recommended by McFadden. He referred to his own program as “managed money” for which he presented slides illustrating returns of 11% to 14% – rates necessary to sustain annual withdrawal amounts he promised.

McFadden also wrote personal letters to customers – in once case indicating a couple could maintain annual withdrawals of $60,000, and in another case suggesting a customer make annual withdrawals greater than 7.85% of his account balance.

Even after clients’ accounts were being depleted to dangerous levels by withdrawals and market losses, McFadden continued to suggest he could achieve rates of return from 11.5% to 18% to ensure they could maintain withdrawal levels, NASD said. In an effort to deliver on his promise, McFadden engaged in discretionary, and in some cases unauthorized, variable annuity sub-account exchanges and mutual fund switches. The 32 retirees at issue deposited cash and securities totaling more than $22.2 million for the purchase of variable annuities, mutual funds and exchange-traded funds (ETFs) for their retirement programs.

Securities America neither admitted nor denied any wrongdoing in their settlement. In addition to the fine and restitution, the firm agreed to hire a consultant to conduct a comprehensive review of the its seminar presentations, advertising, and systems and procedures relating to retirement planning and investment recommendations for retirees.

The NASD news release is here .