New York -- Do you need advice on how to invest? Many people turn to adult education classes or investment seminars. Sometimes they're fine. But if your "teacher" is in the business of selling financial products, you may get biased, even dangerous, advice.
Consider the investment classes offered by the Dade County School Board in southern Florida and taught by James McCormick, at the time a stockbroker with Prudential-Bache.
McCormick taught (as was alleged in subsequent lawsuits) that partnerships and other risky investments were, in fact, safe, conservative and high-yielding alternatives to certificates of deposit. Convinced, many of McCormick's students signed up as clients, according to the suits, giving him money they couldn't always afford to lose.
Not surprisingly, McCormick and Pru-Bache made money while many clients got stuck in bad or inappropriate investments. When they sued for recovery, some students named not only McCormick and Pru-Bache but also the Dade County school board for, among other things, failing to exercise proper supervision over the class.
McCormick taught for seven years before the school board concluded that he was improperly using his class for personal gain and discharged him. Six lawsuits have been settled, according to a Pru-Bache spokesman. Other cases are outstanding. McCormick, who is selling cars in Perine, Fla., calls the lawsuits a "gross injustice" and says his clients understood their risks.
Pushed by a Coral Gables attorney, Lee Schillinger, the Dade school board now plans to require "specialty teachers" such as stockbrokers and other professionals to sign an agreement not to solicit business (although merely being in front of a class amounts to solicitation). Also, they have to disclose annually whether they have any legal claims or actions against them.
These cases open a "novel and worrisome" liability, says John Parsons, an attorney who represented the school board. Other school districts: Take note. Thomas Saler, a former stockbroker and author of "Lies Your Broker Tells You," thinks that licensed salespeople should not be allowed to teach or host radio shows. "It's a prostitution of the educational process," he says.
Another lawsuit arising from investment seminars has been filed against Charles Givens, author of the best-selling "Wealth Without Risk."
Sally Beadle of Cedar Rapids, Iowa, charges that, on advice from the Givens group, she and her husband canceled their uninsured-motorist insurance (castigated by Givens as a "waste of money") and their cash-value life insurance (which Givens called "deceptive"). They did so prior to replacing it with other coverage. Her husband was killed by an uninsured motorist, leaving her with three children and insufficient funds.
The lawsuit charges Givens with misrepresentations and lists 11 state or federal actions or investigations against him and his organizations. Among them: a North Dakota cease-and-desist order against Givens' Life Insurance Clearinghouse.
According to the order, a Givens seminar salesperson falsely claimed that the clearinghouse computer filtered 1,032 term-insurance policies to find members the "guaranteed lowest cost in America" and that no life-insurance agent was involved. In fact, there was no computer, an agent was indeed involved and she earned the standard commission, North Dakota Insurance Commissioner Earl Pomeroy says.
In a deposition for the Cedar Rapids lawsuit, Givens testified that he personally is earning roughly $30,000 a month from the sale of insurance and annuities through the Life Insurance Clearinghouse, according to Beadle's amended complaint. An attorney for Givens refused to comment.
Bad advice alone is not enough for a successful suit against a broker, says Schillinger, who has filed three suits against McCormick. Those cases were grounded in charges of misrepresentation and making unsuitable investments for clients.
The Beadle case against Givens is also grounded in misrepresentation, but with a twist. Brad Brady, a Cedar Rapids attorney, argues that, in selling specific financial products and services, Givens has created a client relationship, giving rise to classic fiduciary and contractual responsibilities.
"He should be held to the same standard as any other financial adviser," Brady says. If the courts agree, that would stand the seminar business on its head.