EJ Hired Guns
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Embattled St. Louis investment firm, Edward Jones, has added a large Washington, D.C. law firm to its arsenal to handle federal regulatory agencies questioning the company's mutual fund investment practices.
advertisementJones hired Wilmer Cutler Pickering Hale and Dorr to represent the firm with the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE).
Locally, Jones continues to employ Greensfelder, Hemker & Gale to deal with an investigation by the U.S. attorney's office for the Eastern District of Missouri, multiple class action lawsuits, and a lawsuit filed by the California attorney general's office. Greensfelder has represented Edward Jones in securities arbitration and other matters for years.
Several attorneys at Greensfelder, including white collar crime and regulatory compliance attorneys Jeff Demerath and Richard Greenberg and litigation practice manager David Harris, have been representing Jones in various actions in 2004.
Early this year, the SEC and the NASD began looking into Edward Jones' mutual fund sales practices, including the practice of revenue sharing with select mutual fund families. News stories about the issue spurred the filing of several class action lawsuits.
On Dec. 20, Edward Jones, without admitting or denying wrongdoing, agreed to pay $75 million as part of a settlement agreement with the SEC, the NASD and NYSE, and Managing Partner Doug Hill agreed to pay $3 million of the settlement and step down from leading the firm at the end of 2005.
The settlement with regulators came on the same day that California Attorney General Bill Lockyer filed a securities fraud lawsuit against the firm, alleging it defrauded customers by failing to disclose the revenue sharing arrangements it had with seven mutual funds.
Harris, who has been defending Edward Jones in the class action lawsuits, may be taking on the California case as well. Harris declined to speak about his role representing Edward Jones, citing a request from the brokerage. But according to the Greensfelder Web site, he often represents large brokerage houses in securities class actions and arbitrations.
Nine class action lawsuits were filed against Edward Jones and its executive committee between January and March 2004, according to SEC filings. Five were filed in federal court in St. Louis, with the rest filed in either Los Angeles or New York.
Demerath and Greenberg are no strangers to federal regulatory issues. Demerath, who recently represented former Charter Communications executive David Barford in a federal case involving inflated subscriber numbers, is a former assistant U.S. attorney. Three other former Charter executives were indicted in the case. Charter, as a company, was not charged with wrongdoing.
Greenberg was a trial attorney, then an assistant director, in the civil division of the U.S. Justice Department in the 1980s. Demerath declined to speak about his role representing Edward Jones, also citing a request from the brokerage firm. Greenberg did not return a phone call.
Hill, meanwhile, is represented by Gordon Ankney, an attorney with Thompson Coburn, one of a team of attorneys that represented Charter at the time the four executives were indicted.
Ankney did not return several phone calls seeking comment.
St. Louis lawyers on the plaintiffs' side include Robert Blitz, a partner with St. Louis law firm Blitz, Bardgett & Deutsch. Blitz was one of the attorneys who filed a class action lawsuit on
Jones to bring in the big guns. But big guns, small guns, or no guns, how do you argue against what they did? Jones- "We did nothing wrong?" Attorney General- "You admitted you did something wrong and you obviously felt it was more serious than what Morgan Stanley did considering your fine you settled for was $25 million more."
Interesting. Today the NYSE announces a $13 mil fine to Morgan Stanley and there isn’t a blip on the forum.
Joedog
$13 million is pennies to MS. $75 million is significant to a maw and pop shop like Jones. End of story.
Truth,
After the fine, EJ had almost $3 billion in revenue and over $200 million in income in 2004. Sure its nothing to sneeze at, but its not bank breaking either.
Also, Banc One got a $400,000 fine for late trading in mutual funds. The regulators should have a “Now Serving” number counter.
Joedog
The MS fine was for delivering prospectuses late. How’s that compare with kickbacks from mutual fund companies to a brokerage that spent years claiming they were purer than the drtiven snow?
The MS fine was for delivering prospectuses late. How’s that compare with kickbacks from mutual fund companies to a brokerage that spent years claiming they were purer than the drtiven snow?
See http://www.sec.gov/news/press/2004-44.htm for the $50 mil fine to Morgan.
I agree EJ was arrogant about it and stupid for the holier than thou claim and if that's what these threads are about so be it.
Joedog
[quote=joedog]I agree EJ was arrogant about it and stupid for the holier than thou claim and if that's what these threads are about so be it.
Joedog [/quote]
it be, it be!!
"See http://www.sec.gov/news/press/2004-44.htm for the $50 mil fine to Morgan. "
Actually that's MFS's $50M fine. I was talking about MS's $19M they were just hit with (someone above mentioned it). $12M had to do with mailing prospectuses late, the balance was about failure to supervise in two high profile cases.
MS and a number of other firms were fined in 2003 for much the same thing Jones did with a preferred fund list. It's interesting that Jones was fined later, and for far more (against rev) than the others were. I suspect there was an issue there....
Hey Joedog,
13 mil is the proverbial fart in a windstorm. Wake up and smell the bacon pal, quit playing both sides of the fence. We all know you're in the HO. You and Salesprevention probably share a hot ham 'n' cheese and tater tots in the 'ole HQ cafe, no?
Salesprevention is a home office clown that is hoping for a $500 bonus from his fearless leaders. He is hoping after 30 hard years on the job that me might make middle management. I can see him now running to his moron bosses saying what he read on the board. Keep up the good work clown!
[quote=stanwbrown]
Actually that’s MFS’s $50M fine. I was talking about MS’s $19M they were just hit with (someone above mentioned it). $12M had to do with mailing prospectuses late, the balance was about failure to supervise in two high profile cases.
MS and a number of other firms were fined in 2003 for much the same thing Jones did with a preferred fund list. It’s interesting that Jones was fined later, and for far more (against rev) than the others were. I suspect there was an issue there…
[/quote]Stan,
I picked the wrong fine, but the below time line reports SEC actions on revenue sharing. Morgan was fined at the end of 2003 for $50 mil.
The Securities and Exchange Commission has taken action four other times on revenue sharing issues:
Dec. 14, 2004: Franklin Resources Inc. is penalized $20 million for using fund assets to compensate brokerage firms for recommending its mutual funds over others.
Sept. 15, 2004: The investment adviser, sub-adviser and principal underwriter and distributor for PIMCO MMS Funds are penalized $11.6 million for failing to disclose facts and conflicts of interest related to fund sales.
March, 31, 2004: Massachusetts Financial Services Co. is penalized $50 million for failing to disclose revenue sharing arrangements with brokerage firms and the conflicts created by them.
Nov. 17, 2003: Morgan Stanley is penalized $50 million for failing to tell customers that a select group of mutual funds paid the firm “substantial fees” for preferred marketing of their funds.
I wonder how many class action lawsuits are pending against Morgan or any of these companies for this. Did the CA AG file against them too? Things that make you go “hmmm?”.
Joedog
Joedog- the world is out to get Jones, huh? I know this is hard for you to understand, but Jones is not a well known firm. They have their name on the dome and every once in a while it gets mentioned. Heck, it used to be that any Jones advertising would only benefit AG Edwards. Anyway, $75 is just the tip of the iceberg. You will see at least another $100 million going out the door after the class action suits. Remember your firm is going up against “The Bulldog” and this dog has a nasty bite.
[quote=DOUG E FRESH]
Hey Joedog,
13 mil is the proverbial fart in a windstorm. Wake up and smell the bacon pal, quit playing both sides of the fence. We all know you’re in the HO. You and Salesprevention probably share a hot ham ‘n’ cheese and tater tots in the ‘ole HQ cafe, no?
[/quote]I get this is the EJ bashing forum. I don’t necessarily disagree with much that is being discussed ( and I use that term loosely). However, its called fair and balanced. Who do you trust when everyone’s a crook? Somebody in all organizations had, has or will have their day.
Whether I’m HO or not is irrelevant. We’re all cogs in the machine making money for someone else (some more than others).
I actually have standing Wednesday lunches with ole’ Dougie at the club… Shall I pass along your grretings?
Joedog
Yea. tell him "he is the best darn scapgoat in the whole wide world"
Dumb cowboy from upstate N.Y. but a rich one.
Maybe Dougie will go back in the field and start churning people like he did before he got the promotion?
[quote=The Truth]
Jones to bring in the big guns. But big guns, small guns, or no guns, how do you argue against what they did? Jones- “We did nothing wrong?” Attorney General- “You admitted you did something wrong and you obviously felt it was more serious than what Morgan Stanley did considering your fine you settled for was $25 million more.”
[/quote]
Truth,
Check an American Funds SAI. They share revenue with the top 75 firms that sell their funds. The firms are actually listed in the SAI. (Rememer in '04 40% of every dollar that went into MFs went into American.)
Jones was singled out because they share the revenue sharing with their advisors through bonuses which are based on each branch’s profitability.
So truth, what did Jones do that’s any worse than what any other firm is doing, besides share the revenue sharing with their advisors?
What does your firm do with the revenue sharing?
BPD
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The grass is GREENER where you water it!