Consumers of Financial Products Should Continue to be Wary

By Fei-Lu Qian

Thought you were saving money by using a discount broker?  Well, maybe not.  It seems Wells Fargo is not the only financial firm that pushes its clients into other financial products and services.  According to an article published in the Wall Street Journal, some of the largest discount brokerage firms such as Fidelity, Schwab and TD Ameritrade have been pushing their “clients toward more-expensive products” through their armies of representatives called financial consultants.  Based on interviews of former employees from the three discount brokerage firms, the compensation practices in those firms “encouraged people to sell products that were more lucrative both for the firm and for the employee – and cost customers more.” 

For example, at Fidelity, representatives are paid 0.04% of the assets clients invest in products such as mutual funds and exchanged-traded funds, but they “earn more than twice as much, 0.10%, on choices that typically generate higher annual fees for Fidelity, such as managed accounts, annuities and referrals to independent financial advisers.”  Indeed, according to a former Fidelity employee who worked there for five years said “you had to lead off” with a Fidelity managed account if a customer had at least $50,000, “and if you didn’t you had to have a reason for it.”  Simply, “sales incentives not only enhance pay directly but also help representatives win ‘Achiever’ bonuses that can be” as much as $82,500 a year at Fidelity.  Similarly, at Schwab, “employees can win an award including a trip to such destinations as Florida or Hawaii.” 

The discount brokerages do not require their financial consultants to disclose about their potential incentives with clients.  Another former Fidelity employee cited by the WSJ believes that the fact that he earned more through compensation and bonuses from selling in-house managed accounts and advisory services, in his mind, “created a conflict.”  The conflict arises as a financial consultant is supposed to act as a fiduciary and act in their client’s best interests, but at the same time, the financial consultant is highly incentivized to push a client into managed account products that may not be in the client’s best interest.  The former Fidelity employee explained to WSJ, “If a target-date fund was suitable for a client’s situation for a client’s situation and a Fidelity managed account was also suitable, the fact that a managed account paid more created a conflict of interest and made it impossible to act in a true fiduciary capacity.”  

In short, when it comes to your money it continues to be “buyer beware.”

Equifax Faces Threat Of Legal Action: Options For Victims

On behalf of Wolf Popper LLP

Equifax is starting to experience the legal ramifications that are following the recent hack of its systems. This breach led to the exposure of personal information for over 145 million consumers.

News of the breach has left consumers confused and concerned. One of the biggest issues with this hack is the fact that it will likely result in a surge of identity theft issues. The consumer credit reporting agency is facing the threat of lawsuits from state attorneys general as well as individuals. But this still leaves the general population with questions. What does this mean for individual's personal information? Who exactly is at an increased risk of identity theft because of this breach?

Those who think they may be negatively impacted by the breach can benefit from a basic understanding of the legal channels that are available for relief. The following will provide some guidance on the claims likely present for state attorneys general as well as those that may be available for individuals that are impacted by this breach.

State laws may protect victims of data breaches. 

Many states have laws that address data breaches such as this. A failure to follow the deadlines and requirements for consumer notification set by each state statute can come with serious penalties.

In this case, the penalties can be particularly severe as they are often applied per incident. Massachusetts state law sets a civil penalty that can reach $5,000 per violation and other states have penalties that can reach $10,000. Due to the magnitude of the breach, the financial ramifications of state penalties alone could be massive. As noted in a recent Market Watch piece, this portion of penalties could quickly exceed $700 billion.

Depending on which states' laws apply, state attorneys general may have the ability to file a lawsuit against Equifax to protect to rights of that state's citizens. Also, individuals who personally experience a large debt as a direct result of the hack may be able to file a lawsuit to hold Equifax accountable. This type of case would require that the injured person establish he or she was the victim of identity theft and that the information was gathered from the Equifax breach.

A class action may also be available, although some recent court cases have made these class claims difficult to prosecute. The class action process could allow injured individuals to seek action on behalf of a "class" of persons injured by Equifax's actions (or inactions) with respect to their personal data. Equifax had sought to avoid such class actions by including an arbitration clause (which precluded class actions) in its monitoring program. However, public pressure forced Equifax to agree not to enforce such a clause.

Certification is not an easy process. As noted in a previous publication by our firm, it requires that the motion to certify the class action meet all elements pursuant to Rule 23 of the Federal Rules of Civil Procedure. These claims also often face fierce opposition.

Equifax and legal woes: Just the beginning?

This may be the beginning for the legal woes Equifax will need to navigate as a result of this hacking incident. We will address other issues that will arise in future posts. Watch for our next post delving into an arbitration provision present on the agency's website.

Finding Fraud In Pharmaceutical Stock Promotion

On behalf of Wolf Popper LLP

Pharmaceutical companies can be lucrative investments when they are on the verge of developing a blockbuster drug. But in some cases, companies have been taking fraudulent steps to make it look like a blockbuster drug is imminent, when in fact it is not. They do this by hiring stock-promotion agencies to write favorable articles touting successful clinical trials in an effort to inflate stock prices. The stock-promoting agencies do not reveal that the pharmaceutical companies have paid them to write the articles. Then, once the stock has inflated, high-level executives sell off their stock and make a killing; that is, until the Securities and Exchange Commission (SEC) discovers what they're doing.

In the case of Immunocellular Technologies and Lion Biotechnology, both of which have been subject to cease-and-desist orders from the SEC, the CEO of both companies had also been running two separate stock-promoting agencies on the side.

A double betrayal

For people waiting for effective new, potentially lifesaving drugs, the practice of stock promotion is particularly cruel. That's because, in some cases, drugs that performed well in one phase of a trial do not perform as well in a subsequent trial, but are presented as effective nevertheless. When executives misrepresent the results of a clinical trial and fraudulently champion the drugs in articles they pay for (but do not disclose), they enrich only themselves -- until the SEC catches up with them.

Not an isolated incident

Unfortunately, this practice is not limited to a few rogue firms; the SEC recently issued 27 cease-and-desist orders against pharmaceutical companies and individuals who have engaged in this kind of misrepresentation; there may be more instances that have yet to come to light. Investors who have been misled by such fraudulent claims may be eligible to join a class action lawsuit.

Work With Experienced Attorney To Bring Private Consumer Fraud Action

On behalf of Wolf Popper LLP

Consumer fraud is a very common occurrence here in New York. One of the jobs of the Attorney General is to protect consumers who have been harmed by consumer fraud and to alert the public to common consumer fraud schemes so that people can take greater care to protect themselves. Attorney General Eric Schneiderman recently released a list of the most common fraud complaints his office received in 2016.

At the top of the list were internet-related fraud schemes, followed by automobile-related fraud, consumer services fraud, leasing disputes, utilities fraud, credit fraud, retail fraud, home repair and construction fraud, mortgage fraud and mail order fraud. Student loan debt reduction or elimination schemes are also quite common. 

When a consumer believes he or she has been harmed by a consumer fraud scheme, whether through deceptive acts or practices or false advertising, notifying the Attorney General is one step that can be taken to address the matter. Under state law, the Attorney General has standing to sue businesses that engage in such practices. The Attorney General is not the only person who has legal standing to bring such a lawsuit, though. Anybody who has been injured by consumer fraud can bring a private action in his or her own name.

Those who choose to bring an enforcement action in their own name should always work with an experienced attorney to build the strongest case and to effectively navigate the legal process. A skilled attorney will be able to effectively advocate for a consumer and provide the best possible opportunity for a favorable outcome in their case.

Source:, "New York fraud complaints topped by internet scams in 2016, AG says," Alison Fox, March 5, 2017. 

NY AG Files Consumer Fraud Lawsuit Against Spectrum-TWC

On behalf of Wolf Popper LLP

Large corporations that offer consumer products and services have a lot of power over consumers. Almost always, consumers are at a disadvantage in negotiating the terms of agreements and have to trust that the company is going to do right by them and deliver on their promises. Of course, businesses do not always deal fairly with consumers, and this is particularly evident in the area of cable and Internet services.

Here in New York, Attorney General Eric Schneiderman filed a consumer fraud lawsuit earlier this month against Internet company Time Warner Cable (TWC), which is now owned by Charter Communications and operates under the brand Spectrum. The company is accused of defrauding and misleading Internet service customers by promising Internet speeds and reliable access to online content it knew would be unable to actually deliver.

As part of this scheme, the suit alleges, TWC leased equipment to customers that was unable to support the quality of Internet connection that TWC promised and advertised. The suit alleges that this occurred over a period of at least five years, earning the company an estimated $108 million per year in fraudulent revenue from up-charging for Internet services.

On top of that, TWC is accused of misleading the Federal Communications Commission by representing that TWC would replace subscribers' substandard cable modems. What the cable company actually did was to replace subscribers' hardware and make adjustments to their modems to provide temporarily for additional bandwidth for faster Internet service. The company's own internal memos apparently admit this. Internal memos also apparently include recommendations that the cable company advertise, based on the temporary increase in Internet speed, that they actually deliver faster speeds than they promise.

In our next post, we'll continue looking at this lawsuit, and the importance of consumers working with an experienced attorney to protect their rights and represent their interests against businesses who engage in consumer fraud.