Securities America to Pay $22M to ExxonMobil Participants

May 18, 2006 ( - In what is being reported as one of the most hefty awards of its kind ever to be imposed on a Wall Street company, Securities America has been slapped with a $22-million fine over charges by former ExxonMobil workers that their broker funneled their retirement savings into overly risky investments.

The award, by a three-judge National Association of Securities Dealers (NASD) arbitrational panel, follows allegations by a group of 32 retired ExxonMobil employees that broker David McFadden improperly invested their retirement money in variable annuities and mutual fund B shares, the Wall Street Journal reported. Class B shares are broker-sold shares that do not carry a front-end sales charge but do carry higher annual fees than other fund shares.

In some cases, the Exxon employees’ losses were substantial, according to the Journal news report.   In the case of 63-year-old Wayland Adams, a machinist supervisor, the $992,208 investment he made with McFadden in 1998 was worth $302,265 by May 2003.   The arbitration panel awarded Adams $629,740.32 in damages and another $189,418.60 in punitive damages.

“These were a bunch of good, hard-working people who put their trust in McFadden, and he betrayed that, and, as a result, they have lost much of their retirement savings, and many have had to return to work, some as Wal-Mart greeters and one who now stocks vending machines for a living,” said Joe Peiffer, the plaintiffs’ lawyer.

A Securities America spokesman told the Journal: “We feel very strongly the decision was wrongfully decided, and we intend to file a motion to vacate.” McFadden said: “I disagree and am disappointed with the award.”

McFadden, according to the group’s joint statement of claim against Securities America, advised all the employees to retire and told them “they would be able to live a lifestyle equal to or superior to the one they had while working.” He told some of the Exxon employees that they were going “to need to learn how to spend money.”

He failed to disclose the high fees that would flow to him and the firm, according to the claim. “In selling these products he put his interest in his own income ahead of his clients’ interests,” the claim alleged.