Monday, March 11, 2013

An Allegation of Misleading "Trust-Based Selling" Against "Dick Van Dyke"


In a previous blog (http://scholarfp.blogspot.com/2013/01/wall-streets-deceptions-brokers-as.html) I noted that “trust-based selling” can get a person into trouble, if they don’t accept fiduciary status and fulfill their fiduciary obligations.  Yet, far too often federal and state securities officials and other enforcement arms fail to take action against these fraudulent practices. Hhowever, in a recent case, arising out of Illinois, a financial advisor faces two separate legal actions involving his trust-based selling practices.

The State of Illinois Attorney General has filed an action seeking civil penalties against Mr. Richard Lee Van Dyke, Jr. (a.k.a. "Dick Van Dyke"), a seller of fixed indexed annuities who, in advertising, stated: “If you want a successful financial plan, you need a financial advisor you can really trust … He believes in principles like full disclosure and transparency and he doesn’t sell investments on commission which means he’s on your side so you get to reach your goals first before he does. When’s the last time an investment advisor put you first?” The basis of the complaint is a violation of Illinois’ Consumer Fraud and Deceptive Business Practices Act. Andy Gluck provides commentary and Advisors4Advisors also provides a copy of the Complaint, at http://advisors4advisors.com/compliance/advertising-compliance/article/17314-financial-advisor-in-illinois-accused-in-lawsuit-by-state-securities-regulators-of-advertising-he-acted-as-a-fiduciary-says-hes-done-nothing-wrong.

In addition, the Division of Securities filed an administrative action against Mr. Van Dyke (in the form of a Notice of Hearing, which can be found at:
http://www.ilsos.gov/adminactionssearch/adminactionssearch) in which it is alleged that Mr. Van Dyke violated his duties to his clients as an investment adviser, during the time that he was registered as such.  One of the sections of the investment adviser state statutes cited has been construed to impose fiduciary duties upon investment advisers.

There are allegations of both actual fraud (in the deceptive trade practices action) and constructive fraud (in the administrative action). In both cases, substantial harm to customers is alleged to have occurred.

From the facts set forth in the two actions, one can only wonder why the state insurance commissioner did not pursue a case of churning (a.k.a. twisting) against this seller of fixed indexed annuities. Then again, under Illinois law, unlike the law of most states, fixed indexed annuities are (at present) regarded as securities. Either that, or this is just more evidence that market conduct regulation and its enforcement by state insurance commissioners remains dismal.

While it is unlikely that a case like this will proceed all the way to a trial, much less become the subject of appeals and subsequent written opinions, this may be a case to watch. Far too long those in arms-length relationships, selling securities and/or insurance products, have engaged in “trust-based selling” techniques. They have held themselves out as experts through the use of titles (many of which lack substance) - an act which is a factor in imposing fiduciary status under state common law. Moreover, many of those in the securities industry have inappropriately touted their “objective” advice.

Will all those who hold out as "putting the best interests of the client first" be held to account, as fiduciaries, for such representations? From Goldman Sachs on Wall Street to small sellers of insurance and investments on Main Street, we can only hope so.

Is the tide beginning to turn? Will our regulators stamp out misrepresentations – both through administrative/court actions and also through prudent regulation? Time will tell.

There are many battlegrounds in the war over fiduciary standards - not just in D.C. Stay tuned.

4 comments:

  1. Ron,

    My name is David Lisnek and I uncovered DVD's annuity churning and other offenses during my financial forensics investigation for an estate that required my expertise. I spent several months gathering records with the executor, which proved to be very fruitful evidence that was later turned over to the Illinois Sec. of State, Illinois Dept. of Insurance, and finally the Illinois Atty General.

    I enjoyed reading your post about this subject and want you to know that you can reach out to me if needed. Though you feel this may not go the distance, I have a feeling that the depth and breadth of his actions will really make this case one for the books. If you need to reach me, just google me... you'll find me!

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  2. Continued...

    However, I have consistently refused to accept any settlement offer from the Illinois Department of Securities (IDOS). Thus, I am still in a costly high stakes legal battle with them. Two key factors in my IDOS appeal involve: The IDOS lack of lawful jurisdiction - whether fixed index annuities are insurance products or securities; and the fact that the IDOS has no client complaints nor any negative client testimony recorded against me.
    I maintain that the IDOS has no lawful jurisdiction over my sale of annuity insurance products. The IDOS has falsely mischaracterized all of the fixed index annuity insurance products that I sold as securities while intentionally disallowing any consideration for the additional insurance benefits or monetary gain my clients obtained from their new annuities. The very statute that they have used to bring their administrative case against me specifically and unambiguously excludes insurance company annuities from being treated as a security under Illinois law.
    My opinion: I am thankful that rational minds at the Illinois Department of Insurance and The Illinois Attorney General’s office finally prevailed to reconsider the facts of my case and settle fairly with me - having no further references to dishonesty or deceptive business practices.
    I only wish more rational consideration would have prevailed from the beginning, sparing me from so much unfair negative press that has seriously harmed both my reputation and business. In addition, it could have saved me over $300,000 in legal fees, so far. This, unfortunately, has been a David versus Goliath type of legal battle; given my limited financial resources compared to that of the State of Illinois’ almost inexhaustible legal resources.

    Sincerely,
    Dick Van Dyke

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  3. The lack of understanding financial markets by this man never ceases to amaze me. I attended the entire duration of DVD hearing (5-7days) with the ISOS and was disgusted by the testimony brought forth. To this day, DVD does not understand he has lost. He does not understand that while EIAs are insurance products, the ISOS has jurisdiction over his business dealings because he was as an RIA. It's not rocket science, Dick. If you were just an insurance agent with just an insurance license, then the ISOS had no jurisdiction. But you chose to market yourself as an "unbiased" financial advisor and charge people $195 an hour for "objective advice"... Just be thankful the Post Master General has not taken "issue" with the manner in which you had dozens of clients terminate their existing EIAs to receive checks in the mail, which you they then deposited into their personal checking accounts so they could write you brand new checks to purchase brand new EIAs that you claimed was in their best interest. At least you graduated high school.

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  4. http://www.slcg.com/pdf/sampleresults/Richard%20Lee%20Van%20Dyke%20Final%20Order.pdf

    ReplyDelete

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