New York Sues H&R Block At Height Of Tax Season
New York Attorney General Eliot Spitzer sued the nation’s largest tax preparation company for fraudulent marketing of individual retirement accounts (IRAs) on March 15, just 1 month before millions of Americans' tax forms are due.
The suit alleges that the H&R Block Company steered hundreds of thousands of its clients, including almost 30,000 New Yorkers, into IRAs that were virtually guaranteed to lose money because of a combination of hidden fees and low interest rates.
"The conduct described in today’s complaint is particularly appalling because many of those hardest hit were working families who struggle to save," Spitzer said. "Instead of providing these families with accurate information that would have allowed them to make informed choices, H&R Block steered them into retirement accounts that actually shrank over time."
The Attorney General’s office began the investigation in 2005 after receiving information from an H&R Block tax preparer.
Over the past four years, H&R Block opened more than half a million "Express IRA" accounts for its tax preparation clients. Customers were told that the IRA paid "great rates"and was "a better way to save," but 85 percent of the customers who opened the accounts paid the company more in fees than they earned in interest. More than 150,000 H&R Block customers closed their accounts, incurring additional undisclosed fees, as well as nearly $6 million in tax penalties.
The civil complaint filed in State Supreme Court in Manhattan cites internal documents showing that H&R Block’s senior management knew that many of its customers were losing money on their Express IRAs. For example, in a 2002 email to Mark Ernst, the company CEO, a district manager complained about the impact of these accounts on customers:
"I really don’t think maintenance fees should exceed the amount of interest that we are paying on these accounts. Clients won’t be happy seeing [their] investments decreasing ... ."
Mr. Ernst forwarded this email to the Express IRA product manager and added his own comments: "The attached note . . . reflects the general sense that I think exists - that Express IRA is the right thing for our clients, but the product is designed to nickel and dime clients to the point where our field people [don’t] feel as good about the product as they should... ."
Some conscientious H&R Block employees (including the person who brought the information to the Attorney General) actually refused to promote the product to clients.
In 2003, an internal H&R Block report prepared by the Express IRA product manager described the growing concerns of tax professionals about the product in the following way:
"Top 4 reasons tax pros are not offering the product:
1. $15 setup fee – ‘it’s too steep for my clients’
2. $15 recontribution fee – ‘they’ve already paid once, why charge them again?’
3. Low interest rate – ‘my client will never make up the fee’
4. $10 annual maint. fee – ‘my clients have to pay this in addition to the $15 fee.’"
The company’s management took no action to address these concerns. Instead, H&R Block continued to tout the Express IRA as a good way for lower and moderate income people to save.
The complaint alleges that the company pushed the Express IRA in an effort to encourage repeat customers for its tax preparation services and to maximize its fee revenue.
Spitzer’s complaint describes the experience of several New York customers:
– A 32-year-old Albany resident with a taxable income of $17,847 made a one-time, minimum contribution of $300 to an Express IRA in 2002. Over the past four years, the investment earned $10.29 in interest but incurred a total of $45 in fees. The Albany resident’s investment lost 12 percent of its value and will continue to decline.
– A 68-year-old resident of Brooklyn with a taxable income of $25,421 made a one-time contribution of $300 to an Express IRA in 2004. The individual was charged a $15 account opening fee, a $10 account maintenance fee, and a $25 closing fee when the account was closed after 18 months. These fees dwarfed the interest earned on the account ($5.18) and, as a result, the Brooklyn resident’s investment declined by 15 percent.
Advocates for lower-income consumers praised the lawsuit: Sarah Ludwig, Director of the Neighborhood Economic Development Advocacy Project in New York, said: "Lower and middle- income New Yorkers encounter a host of abuses at tax prep sites such as H&R Block. The abuse that the Attorney General has uncovered in connection with the Express IRA is particularly troubling. Working families are entitled to know all the facts about a retirement product – both good and bad – before they decide to invest. Our organization strongly encourages people to get their taxes done at free tax prep sites, which will prepare people's taxes professionally, with zero incentive to rip people off."
Spitzer’s lawsuit specifically alleges that H&R Block, based in Kansas City, failed to adequately disclose its fees to its customers, failed to warn that the interest paid would not cover the fees in certain instances, and misleadingly described the interest rates as "great" when they were at times less than one percent annually. This misleading and incomplete disclosure violated New York’s consumer fraud law and was a breach of the company’s fiduciary duty to its clients. Relief sought includes an injunction from further violations of New York law, damages and civil penalties.
The investigation was led by Assistant Attorney General James Park, with Assistant Attorneys General Gary Connor and Matthew Gaul, and Economist Hampton Finer, and was supervised by David D. Brown, IV, Chief of the Investment Protection Bureau.
Friday, March 31, 2006
Thursday, March 30, 2006
Government Shuts Down Illegal Phone "Cramming" Operation
At the request of the Federal Trade Commission, a federal judge has halted a massive fraudulent billing scheme that has collected more than $25 million in bogus collect call charges from hundreds of thousands of consumers. The FTC charged three companies and their principals with deceptive and unfair billing practices for “cramming” – the unauthorized billing of charges on phone bills – since at least January 2004.
"Charging consumers for bogus collect calls is stealing," said Lydia Parnes, Director of the FTC's Bureau of Consumer Protection." The Federal Trade Commission will not tolerate crooks who cram unauthorized charges onto phone bills."
The FTC’s complaint alleges that, in many instances, the defendants initiated phony collect call charges, such as calls to telephone lines that were dedicated to computers and fax machines, and to phones where no one was present. In addition, some consumers'caller ID logs had no record of collect calls for which they were billed.
The FTC charged the defendants with violating Section 5 of the FTC Act by representing that consumers owed money they did not owe, and by causing consumers to be billed for collect phone calls they neither received nor authorized. According to the FTC’s complaint, the defendants claimed that they submitted charges for billing on consumers'bills on behalf of long distance service providers, although the defendants have few, if any, long distance carriers as clients. The defendants' charges typically were buried on the last page of consumers'phone bills, with each charge typically in the range of $5 to $8.
On February 27, Senior Judge Kenneth Ryskamp ordered an ex parte temporary restraining order freezing the assets of Nationwide Communications Inc., Access One Communications Inc., Network One Services Inc., and their principals, Willoughby Farr, Mary Lou Farr, Yaret Garcia, Erika Riaboukha, and Qaadir Kaid. The order appointed a temporary receiver over them and banned them from engaging in unauthorized billing.
On March 8, the court found that the defendants engaged in the widespread unauthorized billing of collect calls in violation of Section 5 of the FTC Act and entered a preliminary injunction order prohibiting them from billing or submitting any charge for billing on a consumer’s telephone bill. The order continued the asset freeze over them and appointed a permanent receiver over Nationwide Communications, Access One Communications, Network One Services, and certain affiliated entities. The FTC ultimately seeks to permanently bar the defendants from further violations, make them forfeit their ill-gotten gains, and make them pay restitution to consumers.
The Commission approved the filing of the complaint in U.S. District Court for the Southern District of Florida by a 5-0 vote.
NOTE: The Commission authorizes the filing of a complaint when it has 'reason to believe' that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
At the request of the Federal Trade Commission, a federal judge has halted a massive fraudulent billing scheme that has collected more than $25 million in bogus collect call charges from hundreds of thousands of consumers. The FTC charged three companies and their principals with deceptive and unfair billing practices for “cramming” – the unauthorized billing of charges on phone bills – since at least January 2004.
"Charging consumers for bogus collect calls is stealing," said Lydia Parnes, Director of the FTC's Bureau of Consumer Protection." The Federal Trade Commission will not tolerate crooks who cram unauthorized charges onto phone bills."
The FTC’s complaint alleges that, in many instances, the defendants initiated phony collect call charges, such as calls to telephone lines that were dedicated to computers and fax machines, and to phones where no one was present. In addition, some consumers'caller ID logs had no record of collect calls for which they were billed.
The FTC charged the defendants with violating Section 5 of the FTC Act by representing that consumers owed money they did not owe, and by causing consumers to be billed for collect phone calls they neither received nor authorized. According to the FTC’s complaint, the defendants claimed that they submitted charges for billing on consumers'bills on behalf of long distance service providers, although the defendants have few, if any, long distance carriers as clients. The defendants' charges typically were buried on the last page of consumers'phone bills, with each charge typically in the range of $5 to $8.
On February 27, Senior Judge Kenneth Ryskamp ordered an ex parte temporary restraining order freezing the assets of Nationwide Communications Inc., Access One Communications Inc., Network One Services Inc., and their principals, Willoughby Farr, Mary Lou Farr, Yaret Garcia, Erika Riaboukha, and Qaadir Kaid. The order appointed a temporary receiver over them and banned them from engaging in unauthorized billing.
On March 8, the court found that the defendants engaged in the widespread unauthorized billing of collect calls in violation of Section 5 of the FTC Act and entered a preliminary injunction order prohibiting them from billing or submitting any charge for billing on a consumer’s telephone bill. The order continued the asset freeze over them and appointed a permanent receiver over Nationwide Communications, Access One Communications, Network One Services, and certain affiliated entities. The FTC ultimately seeks to permanently bar the defendants from further violations, make them forfeit their ill-gotten gains, and make them pay restitution to consumers.
The Commission approved the filing of the complaint in U.S. District Court for the Southern District of Florida by a 5-0 vote.
NOTE: The Commission authorizes the filing of a complaint when it has 'reason to believe' that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Wednesday, March 29, 2006
Consumer Help Web Congratulates Google
As tax season draws to a close over the next two weeks, and tens of millions of American consumers share their personal information with the federal government to calculate income taxes, Consumer Help Web finds it refreshing that Google was the sole search engine portal to refuse a government demand for data on consumer searches.
Regardless of the reasons cited in the Department of Justice's suit, most industry watchers, the media and even the general public viewed this exercise as a fishing expedition. That Google stood up to the government for months is a testament to the company's unwillingness to be complicit in data mining without specifics.
Consumer Help Web, Inc. salutes Google for its stand. For more information on this and similar issues, consumers should visit the Electronic Frontier Foundation.
As tax season draws to a close over the next two weeks, and tens of millions of American consumers share their personal information with the federal government to calculate income taxes, Consumer Help Web finds it refreshing that Google was the sole search engine portal to refuse a government demand for data on consumer searches.
Regardless of the reasons cited in the Department of Justice's suit, most industry watchers, the media and even the general public viewed this exercise as a fishing expedition. That Google stood up to the government for months is a testament to the company's unwillingness to be complicit in data mining without specifics.
Consumer Help Web, Inc. salutes Google for its stand. For more information on this and similar issues, consumers should visit the Electronic Frontier Foundation.
Tuesday, March 28, 2006
Credit Bureaus Ratchet Up Scoring Wars
Consumers for years have tangled with the three major U.S. credit bureaus because of inconsistent or sometimes inaccurate data. A fourth company actually introduced a credit scoring system using data from the information companies to attempt to predict the creditworthiness of a loan or other obligation.
Now the credit bureaus - Equifax, Experian and Trans Union - are fighting back. They have introduced a new scoring system that makes use of a different scale. The industry standard, known as a FICO score since it was created by Fair, Isaac Corporation, used an 850 point scale. The new program, called VantageScore, uses a 990 point scale.
"The truth is that there were always inconsistencies between the different bureaus' reports," said Consumer Help Web President Joan Bounacos. "We simply wish they had entered into an agreement with Fair, Isaac so that consumers were not confused by knowing whether a particular number was good or bad."
Consumers are entitled to receive a free credit report each year, and some industry experts have expressed concern that the VantageScore, which can be sold, is an attempt to generate more consumer revenue. "We know that they have to make the data available," Bounacos said. "But now they can simply say that that they have complied by supplying the raw data."
Fair, Isaac had previously released proportional information that told consumers how their actions could impact their credit score. VantageScore, which is a separate commercial entity owned jointly by the credit bureaus, has released more information, but consumer advocates say the data is harder for consumers to understand and may lead to differing conclusions.
"No one is going to share their secret formula, nor should they," Bounacos said. "But to help consumers improve their credit, VantageScore should release at least the proportion of different actions that go into computing the score. Nothing will be gained by hiding this information from consumers."
Consumers for years have tangled with the three major U.S. credit bureaus because of inconsistent or sometimes inaccurate data. A fourth company actually introduced a credit scoring system using data from the information companies to attempt to predict the creditworthiness of a loan or other obligation.
Now the credit bureaus - Equifax, Experian and Trans Union - are fighting back. They have introduced a new scoring system that makes use of a different scale. The industry standard, known as a FICO score since it was created by Fair, Isaac Corporation, used an 850 point scale. The new program, called VantageScore, uses a 990 point scale.
"The truth is that there were always inconsistencies between the different bureaus' reports," said Consumer Help Web President Joan Bounacos. "We simply wish they had entered into an agreement with Fair, Isaac so that consumers were not confused by knowing whether a particular number was good or bad."
Consumers are entitled to receive a free credit report each year, and some industry experts have expressed concern that the VantageScore, which can be sold, is an attempt to generate more consumer revenue. "We know that they have to make the data available," Bounacos said. "But now they can simply say that that they have complied by supplying the raw data."
Fair, Isaac had previously released proportional information that told consumers how their actions could impact their credit score. VantageScore, which is a separate commercial entity owned jointly by the credit bureaus, has released more information, but consumer advocates say the data is harder for consumers to understand and may lead to differing conclusions.
"No one is going to share their secret formula, nor should they," Bounacos said. "But to help consumers improve their credit, VantageScore should release at least the proportion of different actions that go into computing the score. Nothing will be gained by hiding this information from consumers."
Monday, March 27, 2006
Northwest To Charge For "Premium" Seats
Northwest Airlines, just days after purchasing an operating certificate to perhaps launch a subsidiary airline, has announced that it will begin charging passengers who want to sit in "premium" coach seats.
The company said that it would charge passengers an additional $15 to sit in exit rows or other seats that traditionally have more leg room. Northwest did say that passengers in its most elite frequent flier statuses would continue to have the opportunity to upgrade their seat at no additional charge.
Northwest Airlines, just days after purchasing an operating certificate to perhaps launch a subsidiary airline, has announced that it will begin charging passengers who want to sit in "premium" coach seats.
The company said that it would charge passengers an additional $15 to sit in exit rows or other seats that traditionally have more leg room. Northwest did say that passengers in its most elite frequent flier statuses would continue to have the opportunity to upgrade their seat at no additional charge.
Friday, March 24, 2006
FDIC Raises Retirement Account Protection To $250,000
The Federal Deposit Insurance Corporation (FDIC) Board of Directors has approved final rules that will raise the deposit insurance coverage on certain retirement accounts at a bank or savings institution to $250,000 from $100,000. The increase, the result of a new law boosting federal deposit insurance coverage for the first time in more than 25 years, will become effective on April 1. The basic insurance coverage for other deposit accounts, however, will remain at $100,000.
"The increase in deposit insurance coverage on certain retirement accounts is a significant change," said Martin J. Gruenberg, Acting Chairman of the FDIC. "The FDIC is committed to helping depositors understand clearly the change that has been made and how it will affect the deposit insurance coverage for which they are eligible."
Under the FDIC's new rules, up to $250,000 in deposit insurance will be provided for the money a consumer has in a variety of retirement accounts, primarily traditional and Roth IRAs (Individual Retirement Accounts), at one insured institution. Also included are self-directed Keogh accounts, "457 Plan" accounts for state government employees, and employer-sponsored "defined contribution plan" accounts that are self-directed, which are primarily 401(k) accounts. In general, self-directed means the consumer chooses how and where the money is deposited.
In addition, the IRAs and other retirement accounts that will be protected under the new rules to $250,000 are insured separately from other accounts at the same institution that will continue to be insured up to at least $100,000.
The new law also established a method by which the FDIC would consider an increase in the insurance limits on all deposit accounts (including retirement accounts) in the future, but only every five years starting in 2011. Any such increase would be based, in part, on inflation. Otherwise, accounts will continue to be insured as described above.
The Federal Deposit Insurance Corporation (FDIC) Board of Directors has approved final rules that will raise the deposit insurance coverage on certain retirement accounts at a bank or savings institution to $250,000 from $100,000. The increase, the result of a new law boosting federal deposit insurance coverage for the first time in more than 25 years, will become effective on April 1. The basic insurance coverage for other deposit accounts, however, will remain at $100,000.
"The increase in deposit insurance coverage on certain retirement accounts is a significant change," said Martin J. Gruenberg, Acting Chairman of the FDIC. "The FDIC is committed to helping depositors understand clearly the change that has been made and how it will affect the deposit insurance coverage for which they are eligible."
Under the FDIC's new rules, up to $250,000 in deposit insurance will be provided for the money a consumer has in a variety of retirement accounts, primarily traditional and Roth IRAs (Individual Retirement Accounts), at one insured institution. Also included are self-directed Keogh accounts, "457 Plan" accounts for state government employees, and employer-sponsored "defined contribution plan" accounts that are self-directed, which are primarily 401(k) accounts. In general, self-directed means the consumer chooses how and where the money is deposited.
In addition, the IRAs and other retirement accounts that will be protected under the new rules to $250,000 are insured separately from other accounts at the same institution that will continue to be insured up to at least $100,000.
The new law also established a method by which the FDIC would consider an increase in the insurance limits on all deposit accounts (including retirement accounts) in the future, but only every five years starting in 2011. Any such increase would be based, in part, on inflation. Otherwise, accounts will continue to be insured as described above.
Thursday, March 23, 2006
Southwest Airlines Raises Highest Fare
Bowing to pressure from rising fuel costs, Southwest Airlines has raised its maximum fare to $309.
The airline, which is known for no-frills flying including a lack of assigned seating, was the single largest increase in the company's history, according to a spokesperson.
The increase moves the highest amount charged for a fare from $299, a rate Southwest put in place nearly four years ago.
Bowing to pressure from rising fuel costs, Southwest Airlines has raised its maximum fare to $309.
The airline, which is known for no-frills flying including a lack of assigned seating, was the single largest increase in the company's history, according to a spokesperson.
The increase moves the highest amount charged for a fare from $299, a rate Southwest put in place nearly four years ago.
Wednesday, March 22, 2006
Abbott Labs Introduces Free Program For Diabetics
According to a recent survey conducted by Kelton Research, an estimated nine out of 10 people with Type 2 diabetes know that weight loss would help them to better control their diabetes and recognize the importance of a personalized weight management plan, but more than half mention expenses more than any other factor as a challenge to their daily diabetes management.
In response to the need for a personalized, affordable diabetes management plan, Abbott's Glucerna® Brand Shakes and Bars has launched the Diabetes Control for Life™ Program, a free 24-week Web-based program for people with diabetes who want to lose weight and better control their blood sugar levels. The program was designed specifically for people with Type 2 diabetes by a team of health care professionals to encourage healthier nutrition, activity, and lifestyle changes.
"Affordable, customized care is essential to successful weight loss among the millions of Americans with Type 2 diabetes," said Lorena Drago, Registered Dietitian and Certified Diabetes Educator at The New York Weil Cornell Medical Center. "For those living with the condition, a weight management plan tailored to their personal needs and goals is equally as important as general education about the complexities of diabetes care."
Weight management has a profound impact on the long-term cost and complications related to diabetes. Studies have shown that even a 5 percent weight loss in people with Type 2 diabetes can improve health by lowering blood sugar levels.
The Diabetes Control for Life™ Program is a 24-week program that encourages participants to eat healthy, live an active life and address lifestyle habits that have made previous attempts at weight loss unsuccessful. The free Web-based program includes:
"Comprehensive, readily accessible lifestyle improvement programs for people with diabetes are not always affordable or easy to find," explains Carolyn Alish, Senior Nutrition Scientist, Abbott’s Ross Products Division. "In response, our health care professional team developed the Diabetes Control for Life Program with personalized meal and fitness plans and a unique instant messaging function that allows participants to communicate online with a registered dietitian at no expense, in the comfort of their own home or anywhere they have Internet access."
To enroll in the Diabetes Control for Life Program or for more information, visit www.DiabetesHealthConnection.com. For people with diabetes who do not have access to the Internet, a free guide to weight management and meal planning is available by calling 1-877-7GLUCERNA.
As with any weight loss program, participants should talk to their health care professional before starting the program.
According to a recent survey conducted by Kelton Research, an estimated nine out of 10 people with Type 2 diabetes know that weight loss would help them to better control their diabetes and recognize the importance of a personalized weight management plan, but more than half mention expenses more than any other factor as a challenge to their daily diabetes management.
In response to the need for a personalized, affordable diabetes management plan, Abbott's Glucerna® Brand Shakes and Bars has launched the Diabetes Control for Life™ Program, a free 24-week Web-based program for people with diabetes who want to lose weight and better control their blood sugar levels. The program was designed specifically for people with Type 2 diabetes by a team of health care professionals to encourage healthier nutrition, activity, and lifestyle changes.
"Affordable, customized care is essential to successful weight loss among the millions of Americans with Type 2 diabetes," said Lorena Drago, Registered Dietitian and Certified Diabetes Educator at The New York Weil Cornell Medical Center. "For those living with the condition, a weight management plan tailored to their personal needs and goals is equally as important as general education about the complexities of diabetes care."
Weight management has a profound impact on the long-term cost and complications related to diabetes. Studies have shown that even a 5 percent weight loss in people with Type 2 diabetes can improve health by lowering blood sugar levels.
The Diabetes Control for Life™ Program is a 24-week program that encourages participants to eat healthy, live an active life and address lifestyle habits that have made previous attempts at weight loss unsuccessful. The free Web-based program includes:
- Personal assessment report to determine levels of readiness to change eating habits and lifestyle
- Customizable meal plans and fitness plans
- Helpful, motivating articles about healthy eating, exercise, and lifestyle
- Weekly e-mail communication to encourage, educate and motivate participants
- Access to live, one-on-one instant messaging with registered dietitians
"Comprehensive, readily accessible lifestyle improvement programs for people with diabetes are not always affordable or easy to find," explains Carolyn Alish, Senior Nutrition Scientist, Abbott’s Ross Products Division. "In response, our health care professional team developed the Diabetes Control for Life Program with personalized meal and fitness plans and a unique instant messaging function that allows participants to communicate online with a registered dietitian at no expense, in the comfort of their own home or anywhere they have Internet access."
To enroll in the Diabetes Control for Life Program or for more information, visit www.DiabetesHealthConnection.com. For people with diabetes who do not have access to the Internet, a free guide to weight management and meal planning is available by calling 1-877-7GLUCERNA.
As with any weight loss program, participants should talk to their health care professional before starting the program.
Tuesday, March 21, 2006
IRS Warns About Tax Scams
The Internal Revenue Service has reminded taxpayers about the agency's “Dirty Dozen”––its latest annual tally of some of the most notorious tax scams––along with an alert to taxpayers this filing season to watch out for schemes that promise to reduce or eliminate taxes.
Two new schemes have worked their way onto the list in 2006. In recent months IRS personnel have noted the emergence of the two scams––“zero wages” and “Form 843 tax abatement”–– in which filers use IRS forms to claim that their tax bills have been wrongly inflated.
Also high on the list in 2006 is “phishing,” a favorite ploy of identity thieves. Over the past few years, the IRS has observed criminals working through the Internet, posing even as representatives of the IRS itself, with the goal of tricking unsuspecting taxpayers into revealing private information that can be used to steal from their financial accounts.
Several of the usual suspects from last year remain on the list. The IRS, for example, continues to see schemes designed to exploit charitable organizations. Some taxpayers, meanwhile, still use frivolous arguments to claim they do not owe taxes, despite the fact such reasoning has been thrown out of court time and again.
“When it comes to taxes, everyone has to pay their fair share,” IRS Commissioner Mark W. Everson said. “I urge taxpayers not to be taken in by hucksters who promise to lower or eliminate taxes. Getting caught up in the Dirty Dozen or similar schemes can lead to big headaches.
”Namely, involvement with tax schemes can lead to imprisonment and fines. The IRS pursues and shuts down promoters of these and numerous other scams. Anyone pulled into these schemes can also face repayment of taxes plus interest and penalties.
The IRS urges people to avoid these common schemes:
1. Zero Wages. In this scam, new to the Dirty Dozen, a taxpayer attaches to his or her return either a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 that shows zero or little wages or other income. The taxpayer may include a statement indicating the taxpayer is rebutting information submitted to the IRS by the payer.An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and 3121" or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form 4852 or 1099 is usually attached to a “Zero Return.” (See number four below.)
2. Form 843 Tax Abatement. This scam, also new to the Dirty Dozen, rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83––Property Transferred in Connection with Performance of Service."
3. Phishing. Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for new loans in their names. These Internet-based criminals pose as representatives of a financial institution and send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. Sometimes scammers pose as the IRS itself. In recent months, some taxpayers have received e-mails that appear to come from the IRS. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site. The Web site then solicits a social security and credit card number. In a variation of this scheme, criminals have used e-mail to announce to unsuspecting taxpayers they are “under audit” and could make things right by divulging selected private financial information. Taxpayers should take note: The IRS does not use e-mail to initiate contact with taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call 1-800-829-1040 to confirm it.
4. Zero Return. Promoters instruct taxpayers to enter all zeros on their federal income tax filings. In a twist on this scheme, filers enter zero income, report their withholding and then write “nunc pro tunc”–– Latin for “now for then”––on the return. They often also do this with amended returns in the hope the IRS will disregard the original return in which they reported wages and other income.
5. Trust Misuse. For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. There are currently more than 200 active investigations underway and three dozen injunctions have been obtained against promoters since 2001. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.
6. Frivolous Arguments. Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
7. Return Preparer Fraud. Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the old saying goes, “If it sounds too good to be true, it probably is.” And remember, no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2005, more than 110 tax return preparers were convicted of tax crimes.
8. Credit Counseling Agencies. Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment plans or impose high set-up fees or monthly service charges that may add to existing debt. The IRS Tax Exempt and Government Entities Division is in the process of revoking the tax-exempt status of numerous credit counseling organizations that operated under the guise of educating financially distressed consumers with debt problems while charging debtors large fees and providing little or no counseling.
9. Abuse of Charitable Organizations and Deductions. The IRS has observed increased use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur, for example, when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income, thereby obtaining a tax deduction without transferring a commensurate benefit to charity. A “contribution” of a historic facade easement to a tax-exempt conservation organization is another example. In many cases, local historic preservation laws already prohibit alteration of the home’s facade, making the contributed easement superfluous. Even if the facade could be altered, the deduction claimed for the easement contribution may far exceed the easement’s impact on the value of the property.
10. Offshore Transactions. Despite a crackdown by the IRS and state tax agencies, individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions. During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes.
11. Employment Tax Evasion. The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. Such advice is based on an incorrect interpretation of Section 861 and other parts of the tax law and has been refuted in court. Lately, the IRS has seen an increase in activity in the area of “double-dip” parking and medical reimbursement issues. In recent years, the courts have issued injunctions against more than a dozen persons ordering them to stop promoting the scheme. During fiscal 2005, more than 50 individuals were sentenced to an average of 30 months in prison for employment tax evasion. Employer participants can also be held responsible for back payments of employment taxes, plus penalties and interest. It is worth noting that employees who have nothing withheld from their wages are still responsible for payment of their personal taxes.
12. “No Gain” Deduction. Filers attempt to eliminate their entire adjusted gross income (AGI) by deducting it on Schedule A. The filer lists his or her AGI under the Schedule A section labeled “Other Miscellaneous Deductions” and attaches a statement to the return that refers to court documents and includes the words “No Gain Realized.”
The Internal Revenue Service has reminded taxpayers about the agency's “Dirty Dozen”––its latest annual tally of some of the most notorious tax scams––along with an alert to taxpayers this filing season to watch out for schemes that promise to reduce or eliminate taxes.
Two new schemes have worked their way onto the list in 2006. In recent months IRS personnel have noted the emergence of the two scams––“zero wages” and “Form 843 tax abatement”–– in which filers use IRS forms to claim that their tax bills have been wrongly inflated.
Also high on the list in 2006 is “phishing,” a favorite ploy of identity thieves. Over the past few years, the IRS has observed criminals working through the Internet, posing even as representatives of the IRS itself, with the goal of tricking unsuspecting taxpayers into revealing private information that can be used to steal from their financial accounts.
Several of the usual suspects from last year remain on the list. The IRS, for example, continues to see schemes designed to exploit charitable organizations. Some taxpayers, meanwhile, still use frivolous arguments to claim they do not owe taxes, despite the fact such reasoning has been thrown out of court time and again.
“When it comes to taxes, everyone has to pay their fair share,” IRS Commissioner Mark W. Everson said. “I urge taxpayers not to be taken in by hucksters who promise to lower or eliminate taxes. Getting caught up in the Dirty Dozen or similar schemes can lead to big headaches.
”Namely, involvement with tax schemes can lead to imprisonment and fines. The IRS pursues and shuts down promoters of these and numerous other scams. Anyone pulled into these schemes can also face repayment of taxes plus interest and penalties.
The IRS urges people to avoid these common schemes:
1. Zero Wages. In this scam, new to the Dirty Dozen, a taxpayer attaches to his or her return either a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 that shows zero or little wages or other income. The taxpayer may include a statement indicating the taxpayer is rebutting information submitted to the IRS by the payer.An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and 3121" or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form 4852 or 1099 is usually attached to a “Zero Return.” (See number four below.)
2. Form 843 Tax Abatement. This scam, also new to the Dirty Dozen, rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83––Property Transferred in Connection with Performance of Service."
3. Phishing. Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for new loans in their names. These Internet-based criminals pose as representatives of a financial institution and send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. Sometimes scammers pose as the IRS itself. In recent months, some taxpayers have received e-mails that appear to come from the IRS. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site. The Web site then solicits a social security and credit card number. In a variation of this scheme, criminals have used e-mail to announce to unsuspecting taxpayers they are “under audit” and could make things right by divulging selected private financial information. Taxpayers should take note: The IRS does not use e-mail to initiate contact with taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call 1-800-829-1040 to confirm it.
4. Zero Return. Promoters instruct taxpayers to enter all zeros on their federal income tax filings. In a twist on this scheme, filers enter zero income, report their withholding and then write “nunc pro tunc”–– Latin for “now for then”––on the return. They often also do this with amended returns in the hope the IRS will disregard the original return in which they reported wages and other income.
5. Trust Misuse. For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. There are currently more than 200 active investigations underway and three dozen injunctions have been obtained against promoters since 2001. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.
6. Frivolous Arguments. Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
7. Return Preparer Fraud. Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the old saying goes, “If it sounds too good to be true, it probably is.” And remember, no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2005, more than 110 tax return preparers were convicted of tax crimes.
8. Credit Counseling Agencies. Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment plans or impose high set-up fees or monthly service charges that may add to existing debt. The IRS Tax Exempt and Government Entities Division is in the process of revoking the tax-exempt status of numerous credit counseling organizations that operated under the guise of educating financially distressed consumers with debt problems while charging debtors large fees and providing little or no counseling.
9. Abuse of Charitable Organizations and Deductions. The IRS has observed increased use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur, for example, when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income, thereby obtaining a tax deduction without transferring a commensurate benefit to charity. A “contribution” of a historic facade easement to a tax-exempt conservation organization is another example. In many cases, local historic preservation laws already prohibit alteration of the home’s facade, making the contributed easement superfluous. Even if the facade could be altered, the deduction claimed for the easement contribution may far exceed the easement’s impact on the value of the property.
10. Offshore Transactions. Despite a crackdown by the IRS and state tax agencies, individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions. During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes.
11. Employment Tax Evasion. The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. Such advice is based on an incorrect interpretation of Section 861 and other parts of the tax law and has been refuted in court. Lately, the IRS has seen an increase in activity in the area of “double-dip” parking and medical reimbursement issues. In recent years, the courts have issued injunctions against more than a dozen persons ordering them to stop promoting the scheme. During fiscal 2005, more than 50 individuals were sentenced to an average of 30 months in prison for employment tax evasion. Employer participants can also be held responsible for back payments of employment taxes, plus penalties and interest. It is worth noting that employees who have nothing withheld from their wages are still responsible for payment of their personal taxes.
12. “No Gain” Deduction. Filers attempt to eliminate their entire adjusted gross income (AGI) by deducting it on Schedule A. The filer lists his or her AGI under the Schedule A section labeled “Other Miscellaneous Deductions” and attaches a statement to the return that refers to court documents and includes the words “No Gain Realized.”
Monday, March 20, 2006
Northwest To Operate Smaller Subsidiary?
Following on the heels of Delta and United, which both tried to operate smaller regional subsidiaries flying small jets, bankrupt Northwest Airlines has purchased Independence Air's "operating certificate".
The document is issued by the Federal Aviation Administration. Industry observers Consumer Help Web spoke with say that similar transactions are common when an airline is liquidated. One likened the process to selling a taxicab medallion in New York on a much grander scale.
Northwest and Delta remain in bankruptcy protection although both observers we spoke with said that customers shouldn't panic over their frequent flier miles. "Seats will be tough to find," said one source, "because they will sell a seat instead of giving it away." The source recommended travelers with flexible plans continue checking because seats allocated for "revenue" customers may be freed up later for award travel.
Following on the heels of Delta and United, which both tried to operate smaller regional subsidiaries flying small jets, bankrupt Northwest Airlines has purchased Independence Air's "operating certificate".
The document is issued by the Federal Aviation Administration. Industry observers Consumer Help Web spoke with say that similar transactions are common when an airline is liquidated. One likened the process to selling a taxicab medallion in New York on a much grander scale.
Northwest and Delta remain in bankruptcy protection although both observers we spoke with said that customers shouldn't panic over their frequent flier miles. "Seats will be tough to find," said one source, "because they will sell a seat instead of giving it away." The source recommended travelers with flexible plans continue checking because seats allocated for "revenue" customers may be freed up later for award travel.
Friday, March 17, 2006
GM Truck Recalls Continue, Tailgate Problem Found In Earlier Model Vehicles
General Motors' Chevrolet Silverado and GMC Sierra pickup trucks for model years 1999 and 2000 have been recalled. According to the manufacturer and supported by government documents, cables securing the truck's tailgate can be corroded.
Approximately 900,000 vehicles are affected by this recall, which comes just days after the U.S.' biggest automaker recalled 4 million vehicles from later years for the same reason.
General Motors' Chevrolet Silverado and GMC Sierra pickup trucks for model years 1999 and 2000 have been recalled. According to the manufacturer and supported by government documents, cables securing the truck's tailgate can be corroded.
Approximately 900,000 vehicles are affected by this recall, which comes just days after the U.S.' biggest automaker recalled 4 million vehicles from later years for the same reason.
Thursday, March 16, 2006
IRS Hires Bill Collectors For First Time
The Internal Revenue Service has awarded contracts to three firms to participate in the first phase of its private debt collection initiative.
The firms are:
The CBE Group Inc., Waterloo, Iowa.
Linebarger Goggan Blair & Sampson, LLP, Austin, Texas.
Pioneer Credit Recovery, Inc., Arcade, N.Y.
A total of 33 firms took part in the competitive bidding process that resulted in today’s contract awards.
“The vast majority of states use private firms to help collect delinquent taxes. The new authority that Congress gave to the federal government allows us to use private firms as well,” said IRS Commissioner Mark W. Everson. “We have carefully considered all of the concerns expressed about this project, which involves work traditionally done by the government. As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy. We will be closely monitoring contractor performance to make sure they’re following the law as well as our own internal standards.”
To assist the IRS in its collection of back taxes, the 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. This particular portion of the law was carefully crafted and includes several limitations to ensure the private firms will be subject to the same stringent taxpayer protection and privacy rules that IRS employees work under. In addition, private firms cannot subcontract the work. The IRS expects to assign uncollected liabilities to the firms beginning this summer.
The IRS has also developed its own guidelines for the private firms, including background checks on all private firm personnel associated with the project as well as a mandatory, IRS-directed training program for company personnel.
Private firms will not be authorized to take enforcement actions such as liens, levies or seizures. In addition, private firms will not be authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. Rather, the IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.“Redirecting relatively simple cases to private firms will permit the IRS to focus its existing collection and enforcement personnel on more complex tax issues,” Everson said.
In the second phase of the private debt collection project, scheduled for 2008, the IRS intends to contract with up to 10 firms. Over the course of 10 years, the IRS expects the private firms to help it collect an additional $1.4 billion in outstanding taxes.
The Internal Revenue Service has awarded contracts to three firms to participate in the first phase of its private debt collection initiative.
The firms are:
The CBE Group Inc., Waterloo, Iowa.
Linebarger Goggan Blair & Sampson, LLP, Austin, Texas.
Pioneer Credit Recovery, Inc., Arcade, N.Y.
A total of 33 firms took part in the competitive bidding process that resulted in today’s contract awards.
“The vast majority of states use private firms to help collect delinquent taxes. The new authority that Congress gave to the federal government allows us to use private firms as well,” said IRS Commissioner Mark W. Everson. “We have carefully considered all of the concerns expressed about this project, which involves work traditionally done by the government. As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy. We will be closely monitoring contractor performance to make sure they’re following the law as well as our own internal standards.”
To assist the IRS in its collection of back taxes, the 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. This particular portion of the law was carefully crafted and includes several limitations to ensure the private firms will be subject to the same stringent taxpayer protection and privacy rules that IRS employees work under. In addition, private firms cannot subcontract the work. The IRS expects to assign uncollected liabilities to the firms beginning this summer.
The IRS has also developed its own guidelines for the private firms, including background checks on all private firm personnel associated with the project as well as a mandatory, IRS-directed training program for company personnel.
Private firms will not be authorized to take enforcement actions such as liens, levies or seizures. In addition, private firms will not be authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. Rather, the IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.“Redirecting relatively simple cases to private firms will permit the IRS to focus its existing collection and enforcement personnel on more complex tax issues,” Everson said.
In the second phase of the private debt collection project, scheduled for 2008, the IRS intends to contract with up to 10 firms. Over the course of 10 years, the IRS expects the private firms to help it collect an additional $1.4 billion in outstanding taxes.
Wednesday, March 15, 2006
Military Families Educated by NASD
The NASD Investor Education Foundation has launched a comprehensive new campaign to deliver financial education tools and training to members of the military and their spouses. The campaign is designed to help military personnel and their families manage their money with confidence by providing financial education programs, information and publications, as well as a new Web site — SaveAndInvest.org.
Many servicemembers report having difficulty covering expenses and saving for the future. Research conducted in June 2005 found that only 29 percent of military personnel who currently invest received a passing grade on a quiz about basic financial knowledge. However, 58 percent of survey respondents said that it was very important to them that they become more knowledgeable about saving and investing. Sixty-two percent indicated that they plan to increase their investment levels in the next year.
"We know that military personnel want and need objective, unbiased information to help them make sound financial decisions," said Robert R. Glauber, Chairman of the NASD Investor Education Foundation, who also serves as Chairman and CEO of NASD. "The NASD Foundation is pleased to launch our new campaign to provide financial training and tools to military families and to be working in this effort with the Department of Defense and all branches of the military."
The Foundation, through partnerships with organizations already working with the military community, will provide financial training programs for spouses as well as for on-base financial counselors. The Foundation will also fund the development of publications and resources aimed at providing military personnel with information relevant to their unique needs and lifestyles. A new Web site, SaveAndInvest.org, will cater to the military community and provide useful tools and up-to-date information.
"Family separations resulting from duty stations changes and deployments away from home often put additional financial stress on military families," said Mary Schapiro, a member of the Foundation's Board of Directors and also Vice-Chairman of NASD. "Given the fact that military families are often on the move, we are committed to making sure servicemembers and their spouses have access to easy-to-use tools and financial education materials wherever they are."
"Financial preparedness is a key component of military readiness," said David S.C. Chu, Undersecretary of Defense for Personnel and Readiness. "Equipping servicemembers with the tools and resources they need to make sound financial decisions is integral to both military readiness and the strength and stability of our service members and their families."
The Foundation's military financial education programs are being funded by fines levied against First Command Financial Planning, Inc. for misleading sales practices related to the sale of systematic investment plans to military personnel. Over $5 million in restitution was paid to individual investors and the remaining funds are being used to fund education and training programs for military personnel and their families.
The NASD Foundation has joined forces with the U.S. Securities and Exchange Commission, the National Military Family Association (NMFA), the Association for Financial Counseling and Planning Education (AFCPE), the InCharge Education Foundation, the National Endowment for Financial Education, the American Savings Education Council, CincHouse.com and the Consumer Federation of America to develop programs, provide training, and distribute information and resources to the military community. Program and services are aimed at both servicemembers and their spouses.
"Our collaboration with the NASD Investor Education Foundation will expand and enhance the opportunities we offer our military families," said Tanna Schmidli, NMFA Chairman of the Board. "With their support, we have worked with the AFCPE to launch the Military Spouse Fellowship for the Accredited Financial Counselor™ program. This wonderful Fellowship will provide spouses with the education necessary for entry into the financial counseling and education field. We have already seen tremendous interest in the program and look forward to implementing the Fellowship with great success."
The NASD Investor Education Foundation has launched a comprehensive new campaign to deliver financial education tools and training to members of the military and their spouses. The campaign is designed to help military personnel and their families manage their money with confidence by providing financial education programs, information and publications, as well as a new Web site — SaveAndInvest.org.
Many servicemembers report having difficulty covering expenses and saving for the future. Research conducted in June 2005 found that only 29 percent of military personnel who currently invest received a passing grade on a quiz about basic financial knowledge. However, 58 percent of survey respondents said that it was very important to them that they become more knowledgeable about saving and investing. Sixty-two percent indicated that they plan to increase their investment levels in the next year.
"We know that military personnel want and need objective, unbiased information to help them make sound financial decisions," said Robert R. Glauber, Chairman of the NASD Investor Education Foundation, who also serves as Chairman and CEO of NASD. "The NASD Foundation is pleased to launch our new campaign to provide financial training and tools to military families and to be working in this effort with the Department of Defense and all branches of the military."
The Foundation, through partnerships with organizations already working with the military community, will provide financial training programs for spouses as well as for on-base financial counselors. The Foundation will also fund the development of publications and resources aimed at providing military personnel with information relevant to their unique needs and lifestyles. A new Web site, SaveAndInvest.org, will cater to the military community and provide useful tools and up-to-date information.
"Family separations resulting from duty stations changes and deployments away from home often put additional financial stress on military families," said Mary Schapiro, a member of the Foundation's Board of Directors and also Vice-Chairman of NASD. "Given the fact that military families are often on the move, we are committed to making sure servicemembers and their spouses have access to easy-to-use tools and financial education materials wherever they are."
"Financial preparedness is a key component of military readiness," said David S.C. Chu, Undersecretary of Defense for Personnel and Readiness. "Equipping servicemembers with the tools and resources they need to make sound financial decisions is integral to both military readiness and the strength and stability of our service members and their families."
The Foundation's military financial education programs are being funded by fines levied against First Command Financial Planning, Inc. for misleading sales practices related to the sale of systematic investment plans to military personnel. Over $5 million in restitution was paid to individual investors and the remaining funds are being used to fund education and training programs for military personnel and their families.
The NASD Foundation has joined forces with the U.S. Securities and Exchange Commission, the National Military Family Association (NMFA), the Association for Financial Counseling and Planning Education (AFCPE), the InCharge Education Foundation, the National Endowment for Financial Education, the American Savings Education Council, CincHouse.com and the Consumer Federation of America to develop programs, provide training, and distribute information and resources to the military community. Program and services are aimed at both servicemembers and their spouses.
"Our collaboration with the NASD Investor Education Foundation will expand and enhance the opportunities we offer our military families," said Tanna Schmidli, NMFA Chairman of the Board. "With their support, we have worked with the AFCPE to launch the Military Spouse Fellowship for the Accredited Financial Counselor™ program. This wonderful Fellowship will provide spouses with the education necessary for entry into the financial counseling and education field. We have already seen tremendous interest in the program and look forward to implementing the Fellowship with great success."
Tuesday, March 14, 2006
Paper Shredder Safety Standards Issued
Consumer model paper shredders are growing in popularity. The U.S. Consumer Product Safety Commission (CPSC) wants you and your family to be safe if you have a paper shredder. From January 2000 through September 2005, CPSC received 50 reports of incidents involving finger amputations, lacerations, and other finger injuries from paper shredders. The majority of injuries were to young children under age 5.
Young children are interested in imitating adult activities, and children may try to activate the shredder when an adult is not present. This puts children at risk of injury.
Injuries can occur even when an adult is supervising a child. Children’s fingers can be pulled into the paper shredding mechanism if they don’t let the paper go.
CPSC offers the following safety tips when using a paper shredder:
Never allow children to operate paper shredders, even under adult supervision. Paper shredders can pull children’s fingers into the shredder mechanism.
Place the paper shredder in an area less accessible to children.
Unplug the paper shredder power cord when the shredder is not in use.
Do not place hands or fingers in the shredder opening.
Do not operate a paper shredder while wearing loose fitting clothing that may enter the shredder opening.
Keep hair and items, such as a tie or a long necklace, away from the shredder opening.
Consumer model paper shredders are growing in popularity. The U.S. Consumer Product Safety Commission (CPSC) wants you and your family to be safe if you have a paper shredder. From January 2000 through September 2005, CPSC received 50 reports of incidents involving finger amputations, lacerations, and other finger injuries from paper shredders. The majority of injuries were to young children under age 5.
Young children are interested in imitating adult activities, and children may try to activate the shredder when an adult is not present. This puts children at risk of injury.
Injuries can occur even when an adult is supervising a child. Children’s fingers can be pulled into the paper shredding mechanism if they don’t let the paper go.
CPSC offers the following safety tips when using a paper shredder:
Never allow children to operate paper shredders, even under adult supervision. Paper shredders can pull children’s fingers into the shredder mechanism.
Place the paper shredder in an area less accessible to children.
Unplug the paper shredder power cord when the shredder is not in use.
Do not place hands or fingers in the shredder opening.
Do not operate a paper shredder while wearing loose fitting clothing that may enter the shredder opening.
Keep hair and items, such as a tie or a long necklace, away from the shredder opening.
Monday, March 13, 2006
California Sues Nursing Home Chain Over Care of Quality
Attorney General Bill Lockyer announced that he has secured the settlement of a civil lawsuit he filed against Pleasant Care Corporation, the second largest provider of nursing home care in California, that will result in court-enforceable improvements in the quality of care for elderly Californians at 30 facilities statewide.
“All Californians are entitled to know that they are not putting personal life or health at risk when they or an elderly loved one is placed in the care of a nursing facility,” Lockyer said. “Despite dozens of warnings and fines, Pleasant Care was simply unable to provide an appropriate level of care for its residents.
This injunction will make sure that Pleasant Care complies with existing law and also provides the best level of care possible.” The settlement will result in a permanent injunction that resolves a civil lawsuit filed by the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse in Los Angeles County Superior Court. Lockyer’s lawsuit stems from numerous allegations of elder abuse and criminally negligent care, including more than 160 citations that the California Department of Health Services (DHS) has issued against Pleasant Care facilities across the state over the last five years for regulatory violations. The injunction was formally approved this morning by Superior Court Judge Laura Matz.
Under the terms of the injunction, all 30 of Pleasant Care’s skilled nursing facilities in California must comply with numerous conditions that will immediately and dramatically improve the quality of care provided to residents occupying the company’s more than 4,300 skilled nursing facility beds, including:
• Mandatory Staff Training - staff must undergo training on proper patient care in such areas as wound treatment, accurate record keeping, and the prevention of malnutrition and dehydration; • Abuse and Neglect Investigations - each facility is required to implement policies to ensure prompt reporting and investigation of any alleged act of abuse or neglect towards a resident, and staff persons reasonably suspected of committing abuse must be placed on administrative leave during the course of the investigation;
• Compliance Officer - Pleasant Care must hire a Compliance Officer who will be responsible for ensuring that each facility complies with the law, properly responds to state and federal investigations, and delivers proper levels of care to residents;
• Independent Monitor - Pleasant Care will pay for an Independent Monitor, selected in consultation with the Attorney General, who has broad authority to order statewide quality of care improvements, and will annually report its findings to the AG over the next five years;
• Nurse to Patient Ratio - Pleasant Care must maintain nurse staffing ratio of 3.2 hours per patient, per day, subjected to outside audits to ensure compliance, and ordered to pay stipulated fines for any failure to maintain the required nurse-to-patient ratio; and,
• Whistleblower Protections - Pleasant Care must establish and maintain a whistleblower program that allows employees, residents and other individuals to anonymously report suspected violations and mistreatment of residents. A log detailing all complaints made and investigation outcomes also must be maintained and made available to the Independent Monitor and the AG.
In addition, Pleasant Care is required to pay $1 million in civil penalties and $350,000 to reimburse the state for investigative costs. Failure to fully comply with any provision of the injunction also could result in civil penalties of up to $6,000 per violation, other sanctions deemed appropriate by the court, and exclusion from receiving funding from both the Medi-Cal and Medicare healthcare programs.
Pleasant Care currently operates 30 skilled nursing facilities in 14 different California counties, including: Alameda, Butte, Kern, Los Angeles, Marin, Mendocino, Riverside, San Diego, San Joaquin, San Mateo, Santa Clara, Santa Cruz, Sonoma and Sutter. Over the last five years, DHS has issued more than 160 citations and fines against numerous Pleasant Care facilities for violations of patient care regulations, with several citations involving violations which presented an imminent danger that death or serious harm would result.
In 2004 alone, for example, eight different Pleasant Care nursing homes in California were found to have delivered “substandard” care to residents in annual surveys conducted by DHS. Other specific instances of deficient service and care also formed the basis for the AG’s lawsuit. In 2003, a resident at the company’s Ukiah facility suffered a seizure and a blocked airway, but the nurse was unable to effectively aid the resident due to the fact that the facilities suction machines had not been kept in working order. The resident died from acute cardiopulmonary arrest stemming from his inability to breath. In 2004, a resident at Pleasant Care’s Novato facility suffered from a pressure sore that was allowed to worsen so severely that the resident ultimately died. The coroner who examined the female resident later told DHS that his examination showed that she had been subjected to “abominable wound care management.”
According to data maintained by the Office of Statewide Health Planning and Developement, Pleasant Care has also consistently failed to staff its chain of nursing homes at the rate of 3.2 nursing hours per patient, per day as required by California law. The failure to adequately staff its facilities with qualified nurses resulted in increased profits for the corporation at the expense of its residents’ health and safety.
Attorney General Bill Lockyer announced that he has secured the settlement of a civil lawsuit he filed against Pleasant Care Corporation, the second largest provider of nursing home care in California, that will result in court-enforceable improvements in the quality of care for elderly Californians at 30 facilities statewide.
“All Californians are entitled to know that they are not putting personal life or health at risk when they or an elderly loved one is placed in the care of a nursing facility,” Lockyer said. “Despite dozens of warnings and fines, Pleasant Care was simply unable to provide an appropriate level of care for its residents.
This injunction will make sure that Pleasant Care complies with existing law and also provides the best level of care possible.” The settlement will result in a permanent injunction that resolves a civil lawsuit filed by the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse in Los Angeles County Superior Court. Lockyer’s lawsuit stems from numerous allegations of elder abuse and criminally negligent care, including more than 160 citations that the California Department of Health Services (DHS) has issued against Pleasant Care facilities across the state over the last five years for regulatory violations. The injunction was formally approved this morning by Superior Court Judge Laura Matz.
Under the terms of the injunction, all 30 of Pleasant Care’s skilled nursing facilities in California must comply with numerous conditions that will immediately and dramatically improve the quality of care provided to residents occupying the company’s more than 4,300 skilled nursing facility beds, including:
• Mandatory Staff Training - staff must undergo training on proper patient care in such areas as wound treatment, accurate record keeping, and the prevention of malnutrition and dehydration; • Abuse and Neglect Investigations - each facility is required to implement policies to ensure prompt reporting and investigation of any alleged act of abuse or neglect towards a resident, and staff persons reasonably suspected of committing abuse must be placed on administrative leave during the course of the investigation;
• Compliance Officer - Pleasant Care must hire a Compliance Officer who will be responsible for ensuring that each facility complies with the law, properly responds to state and federal investigations, and delivers proper levels of care to residents;
• Independent Monitor - Pleasant Care will pay for an Independent Monitor, selected in consultation with the Attorney General, who has broad authority to order statewide quality of care improvements, and will annually report its findings to the AG over the next five years;
• Nurse to Patient Ratio - Pleasant Care must maintain nurse staffing ratio of 3.2 hours per patient, per day, subjected to outside audits to ensure compliance, and ordered to pay stipulated fines for any failure to maintain the required nurse-to-patient ratio; and,
• Whistleblower Protections - Pleasant Care must establish and maintain a whistleblower program that allows employees, residents and other individuals to anonymously report suspected violations and mistreatment of residents. A log detailing all complaints made and investigation outcomes also must be maintained and made available to the Independent Monitor and the AG.
In addition, Pleasant Care is required to pay $1 million in civil penalties and $350,000 to reimburse the state for investigative costs. Failure to fully comply with any provision of the injunction also could result in civil penalties of up to $6,000 per violation, other sanctions deemed appropriate by the court, and exclusion from receiving funding from both the Medi-Cal and Medicare healthcare programs.
Pleasant Care currently operates 30 skilled nursing facilities in 14 different California counties, including: Alameda, Butte, Kern, Los Angeles, Marin, Mendocino, Riverside, San Diego, San Joaquin, San Mateo, Santa Clara, Santa Cruz, Sonoma and Sutter. Over the last five years, DHS has issued more than 160 citations and fines against numerous Pleasant Care facilities for violations of patient care regulations, with several citations involving violations which presented an imminent danger that death or serious harm would result.
In 2004 alone, for example, eight different Pleasant Care nursing homes in California were found to have delivered “substandard” care to residents in annual surveys conducted by DHS. Other specific instances of deficient service and care also formed the basis for the AG’s lawsuit. In 2003, a resident at the company’s Ukiah facility suffered a seizure and a blocked airway, but the nurse was unable to effectively aid the resident due to the fact that the facilities suction machines had not been kept in working order. The resident died from acute cardiopulmonary arrest stemming from his inability to breath. In 2004, a resident at Pleasant Care’s Novato facility suffered from a pressure sore that was allowed to worsen so severely that the resident ultimately died. The coroner who examined the female resident later told DHS that his examination showed that she had been subjected to “abominable wound care management.”
According to data maintained by the Office of Statewide Health Planning and Developement, Pleasant Care has also consistently failed to staff its chain of nursing homes at the rate of 3.2 nursing hours per patient, per day as required by California law. The failure to adequately staff its facilities with qualified nurses resulted in increased profits for the corporation at the expense of its residents’ health and safety.
Friday, March 10, 2006
Florida Officials Seek To Outlaw Spoofing
Florida Agriculture and Consumer Services Commissioner Charles H. Bronson announced this month that he is proposing legislation that would outlaw commercial telemarketers from using new technology that disguises their identity.
The practice - known as “ID spoofing” - enables telephone callers to insert any name or phone number that he or she wishes to show up on the caller ID feature of the person being called. In some cases, it even allows the caller to change his or her voice - for example, from male to female, or adult to child.
“We can see no legitimate reason for a telephone sales person to use such technology,” Bronson said. “In fact, the only conclusion we can draw from a telemarketer who would use that kind of device is that the sales person wants to deceive consumers for the purpose of ripping them off.”
Numerous websites advertising this service can be found on the internet, including www.spooftel.com, www.spoofcard.com, www.tricktel.com and www.spooftech.com.
A bill being sponsored by Sen. Evelyn Lynn, of Ormond Beach, would prohibit commercial telemarketers from employing the practice and would provide penalties of up to $10,000 for violations of the law.
“We must protect people from the dangers of those who use technology to misrepresent themselves,” Lynn said. “Many times there are predators who endanger our lives and often times our financial security.”
Bronson emphasized that consumers should be extremely vigilant when dealing with unsolicited sales calls and urges Floridians to carefully safeguard personal or financial information, including one’s social security number, date of birth, credit card number and bank account number, unless you’re certain about with whom you’re dealing. With that information, con artists can run up charges on unsuspecting people’s credit cards, clean out their bank accounts and even assume a consumer’s identity for the purpose of opening up additional lines of credit.
“ID spoofing is yet another example of why consumers need to exercise caution with their personal or financial information, Bronson said. “You simply cannot be too careful.”
Florida Agriculture and Consumer Services Commissioner Charles H. Bronson announced this month that he is proposing legislation that would outlaw commercial telemarketers from using new technology that disguises their identity.
The practice - known as “ID spoofing” - enables telephone callers to insert any name or phone number that he or she wishes to show up on the caller ID feature of the person being called. In some cases, it even allows the caller to change his or her voice - for example, from male to female, or adult to child.
“We can see no legitimate reason for a telephone sales person to use such technology,” Bronson said. “In fact, the only conclusion we can draw from a telemarketer who would use that kind of device is that the sales person wants to deceive consumers for the purpose of ripping them off.”
Numerous websites advertising this service can be found on the internet, including www.spooftel.com, www.spoofcard.com, www.tricktel.com and www.spooftech.com.
A bill being sponsored by Sen. Evelyn Lynn, of Ormond Beach, would prohibit commercial telemarketers from employing the practice and would provide penalties of up to $10,000 for violations of the law.
“We must protect people from the dangers of those who use technology to misrepresent themselves,” Lynn said. “Many times there are predators who endanger our lives and often times our financial security.”
Bronson emphasized that consumers should be extremely vigilant when dealing with unsolicited sales calls and urges Floridians to carefully safeguard personal or financial information, including one’s social security number, date of birth, credit card number and bank account number, unless you’re certain about with whom you’re dealing. With that information, con artists can run up charges on unsuspecting people’s credit cards, clean out their bank accounts and even assume a consumer’s identity for the purpose of opening up additional lines of credit.
“ID spoofing is yet another example of why consumers need to exercise caution with their personal or financial information, Bronson said. “You simply cannot be too careful.”
Thursday, March 09, 2006
Brokerage Firm Fined, Principals Suspended by NASD For Bilking Consumers
NASD announced this month that it has fined Long Island, NY brokerage firm David Lerner Associates, Inc. $400,000 and suspended the firm from engaging in any new variable life insurance or variable annuity business for 30 calendar days for engaging in replacement sales of variable life insurance and variable annuities that violated NASD and New York State rules.
NASD also fined and suspended two of the firm's principals. Martin Lerner, the firm's Executive Vice President of Sales, was suspended from acting in a supervisory capacity for 20 business days. Russell Moss, the firm's Assistant Vice President and Director of Insurance Services, was suspended in all capacities for 20 business days. Lerner and Moss were each held jointly and severally liable for $25,000 of the fine against the firm.
NASD found that between November 1998 and February 2004, David Lerner employees failed to comply with New York State Insurance Department Regulation 60 in connection with variable life insurance and variable annuity replacement sales. The regulation is aimed at ensuring that investors have full and clear information prior to making a decision to replace an existing insurance policy or annuity contract, and at reducing the opportunity for misrepresentations and incomplete comparisons in replacement situations. The circumvention of the New York State regulation also constitutes a violation of NASD rules requiring compliance with just and equitable principles of trade.
"New York's Regulation 60 is designed to protect investors from unsuitable recommendations by brokers to replace variable life and annuity contracts," said NASD Senior Vice President and Acting Head of Enforcement James Shorris. "It's intended to arm investors with the information they need about the costs and other implications of making such replacements before their decision is final. The firm's routine circumvention of the regulation denied investors the required opportunities to fully consider and understand these important investment decisions."
Regulation 60 requires two separate interactions with a customer before a replacement can be completed. In step one, the customer is informed in writing - through a Definition of Replacement form - that a replacement is being considered. The customer must complete a Client Authorization form to allow the firm to collect information about the customer's existing life insurance policy or annuity contract, so that the customer will be able to make a meaningful comparison. Both forms must be signed and dated by the customer.
In step two, among other disclosures, the customer must be provided with a Disclosure Statement setting forth information comparing the old and new life insurance policies or annuity contracts, including the primary reason(s) for recommending the new policy or contract and the reason(s) why the existing policy or contract can no longer meet the applicant's objectives. The customer must sign and date an acknowledgement stating that the customer received and read the completed Disclosure Statement before signing the application for the new annuity contract or life insurance policy.
NASD's investigation showed that David Lerner's employees routinely circumvented the required Regulation 60 replacement process. NASD found that at their initial meetings with customers to discuss a potential variable life insurance or variable annuity replacement sale, the firm's employees routinely instructed customers to sign - but leave undated - all of the required step one and step two Regulation 60 documents. Subsequently, the David Lerner employees would forward the Regulation 60 documentation to an unregistered David Lerner employee in the firm's main office in Syosset, NY, who was responsible for processing all such paperwork.
That employee, with the knowledge of certain members of David Lerner management, routinely completed the required information on the pre-signed paperwork. This included filling in the necessary "Agent's Statement" on the Disclosure Statement, on which the representative was required to list the primary reason(s) for recommending the new life insurance policy or annuity contract and why the existing life insurance policy or annuity contract could not meet the applicant's objectives. That employee completed the required Agent's Statement by consistently listing boilerplate information without having any direct knowledge or understanding of the reason for the proposed replacement in each particular case. Additionally, that employee, with the knowledge of certain members of the firm's management, routinely inserted fictitious dates on the pre-signed Regulation 60 documentation in order to create the false appearance that the required two-step procedure had been followed. The employee reviewed, completed, and processed all Regulation 60 documentation without any principal of the firm ever reviewing the documentation for compliance, as required by the regulation.
By having their clients during the initial meeting pre-sign undated and incomplete Regulation 60 documentation, David Lerner's sales force was in many instances able to effect variable life or variable annuity replacement sales before their clients ever received or reviewed the Regulation 60 documentation as completed by the unregistered employee at the firm's Syosset headquarters.
NASD found that during the relevant period, David Lerner effected at least 527 variable life insurance replacement sales to New York State residents and generated total revenue of more than $3,431,000 from those sales. The firm also effected at least 259 variable annuity replacement sales to New York State residents and generated total revenue of more than $1,372,000 from those sales during the relevant time period.
In addition to the Regulation 60 violations and related books and records violations, NASD also charged the firm, acting through Martin Lerner and Russell Moss, with failing to supervise the firm's sales force with a view towards preventing the Regulation 60 violations, as well as with registration violations for permitting Moss to function as a principal at the firm without being properly registered.
In concluding this settlement, David Lerner Associates, Lerner and Moss neither admitted nor denied the charges, but consented to the entry of NASD's findings.
David Lerner Associates was fined $115,000 last September to settle charges of using misleading marketing materials with the public, including radio advertising, client seminars and other communications. In addition, the firm was ordered not to conduct any public seminars for 30 days. Earlier, NASD fined the firm $100,000 for running improper sales contests to promote certain David Lerner proprietary mutual funds and selected variable annuity and variable life insurance products.
NASD announced this month that it has fined Long Island, NY brokerage firm David Lerner Associates, Inc. $400,000 and suspended the firm from engaging in any new variable life insurance or variable annuity business for 30 calendar days for engaging in replacement sales of variable life insurance and variable annuities that violated NASD and New York State rules.
NASD also fined and suspended two of the firm's principals. Martin Lerner, the firm's Executive Vice President of Sales, was suspended from acting in a supervisory capacity for 20 business days. Russell Moss, the firm's Assistant Vice President and Director of Insurance Services, was suspended in all capacities for 20 business days. Lerner and Moss were each held jointly and severally liable for $25,000 of the fine against the firm.
NASD found that between November 1998 and February 2004, David Lerner employees failed to comply with New York State Insurance Department Regulation 60 in connection with variable life insurance and variable annuity replacement sales. The regulation is aimed at ensuring that investors have full and clear information prior to making a decision to replace an existing insurance policy or annuity contract, and at reducing the opportunity for misrepresentations and incomplete comparisons in replacement situations. The circumvention of the New York State regulation also constitutes a violation of NASD rules requiring compliance with just and equitable principles of trade.
"New York's Regulation 60 is designed to protect investors from unsuitable recommendations by brokers to replace variable life and annuity contracts," said NASD Senior Vice President and Acting Head of Enforcement James Shorris. "It's intended to arm investors with the information they need about the costs and other implications of making such replacements before their decision is final. The firm's routine circumvention of the regulation denied investors the required opportunities to fully consider and understand these important investment decisions."
Regulation 60 requires two separate interactions with a customer before a replacement can be completed. In step one, the customer is informed in writing - through a Definition of Replacement form - that a replacement is being considered. The customer must complete a Client Authorization form to allow the firm to collect information about the customer's existing life insurance policy or annuity contract, so that the customer will be able to make a meaningful comparison. Both forms must be signed and dated by the customer.
In step two, among other disclosures, the customer must be provided with a Disclosure Statement setting forth information comparing the old and new life insurance policies or annuity contracts, including the primary reason(s) for recommending the new policy or contract and the reason(s) why the existing policy or contract can no longer meet the applicant's objectives. The customer must sign and date an acknowledgement stating that the customer received and read the completed Disclosure Statement before signing the application for the new annuity contract or life insurance policy.
NASD's investigation showed that David Lerner's employees routinely circumvented the required Regulation 60 replacement process. NASD found that at their initial meetings with customers to discuss a potential variable life insurance or variable annuity replacement sale, the firm's employees routinely instructed customers to sign - but leave undated - all of the required step one and step two Regulation 60 documents. Subsequently, the David Lerner employees would forward the Regulation 60 documentation to an unregistered David Lerner employee in the firm's main office in Syosset, NY, who was responsible for processing all such paperwork.
That employee, with the knowledge of certain members of David Lerner management, routinely completed the required information on the pre-signed paperwork. This included filling in the necessary "Agent's Statement" on the Disclosure Statement, on which the representative was required to list the primary reason(s) for recommending the new life insurance policy or annuity contract and why the existing life insurance policy or annuity contract could not meet the applicant's objectives. That employee completed the required Agent's Statement by consistently listing boilerplate information without having any direct knowledge or understanding of the reason for the proposed replacement in each particular case. Additionally, that employee, with the knowledge of certain members of the firm's management, routinely inserted fictitious dates on the pre-signed Regulation 60 documentation in order to create the false appearance that the required two-step procedure had been followed. The employee reviewed, completed, and processed all Regulation 60 documentation without any principal of the firm ever reviewing the documentation for compliance, as required by the regulation.
By having their clients during the initial meeting pre-sign undated and incomplete Regulation 60 documentation, David Lerner's sales force was in many instances able to effect variable life or variable annuity replacement sales before their clients ever received or reviewed the Regulation 60 documentation as completed by the unregistered employee at the firm's Syosset headquarters.
NASD found that during the relevant period, David Lerner effected at least 527 variable life insurance replacement sales to New York State residents and generated total revenue of more than $3,431,000 from those sales. The firm also effected at least 259 variable annuity replacement sales to New York State residents and generated total revenue of more than $1,372,000 from those sales during the relevant time period.
In addition to the Regulation 60 violations and related books and records violations, NASD also charged the firm, acting through Martin Lerner and Russell Moss, with failing to supervise the firm's sales force with a view towards preventing the Regulation 60 violations, as well as with registration violations for permitting Moss to function as a principal at the firm without being properly registered.
In concluding this settlement, David Lerner Associates, Lerner and Moss neither admitted nor denied the charges, but consented to the entry of NASD's findings.
David Lerner Associates was fined $115,000 last September to settle charges of using misleading marketing materials with the public, including radio advertising, client seminars and other communications. In addition, the firm was ordered not to conduct any public seminars for 30 days. Earlier, NASD fined the firm $100,000 for running improper sales contests to promote certain David Lerner proprietary mutual funds and selected variable annuity and variable life insurance products.
Wednesday, March 08, 2006
Lilly's Zyprex Under Investigation
Joining Merck's Vioxx in the public spotight is best-selling anti-psychotic medication Zyprexa, manufactured by Eli Lilly.
The drug maker specifically warned about physicians prescribing the medication for elderly consumers who were taking other types of drugs.
Media reports also indicate various state governments are also investigating the drug's use.
Joining Merck's Vioxx in the public spotight is best-selling anti-psychotic medication Zyprexa, manufactured by Eli Lilly.
The drug maker specifically warned about physicians prescribing the medication for elderly consumers who were taking other types of drugs.
Media reports also indicate various state governments are also investigating the drug's use.
Tuesday, March 07, 2006
US, Canada Launch Fraud Prevention Site
Officials from the Federal Trade Commission and Canadian consumer protection agencies met in Ottawa this week to kick off March as Fraud Prevention Month. The initiative is part of an international effort to raise public awareness worldwide of the dangers of fraud, while educating the public on how to recognize and report it. The representatives from the FTC, Canada’s Competition Bureau, the Royal Canadian Mounted Police, and the Ontario Provincial Police explained how cross-border partnerships are key in fighting the global scourge of fraud.
“People operating frauds are increasingly using international borders to try and escape the consequences of their actions,” said C. Steven Baker, Director of the FTC’s Midwest Region. “The U.S. and Canada are leading the world in showing that we can work together and protect consumers on both sides of the border.”
As part of the initiative, the FTC today is launching a new section about cross-border online fraud on www.OnGuardOnline.gov, an educational site with information to help computer users be safe online. Available in both English and Spanish, the site offers information about common scams and tips for avoiding them, as well as instructions on reporting fraud. For example, consumers should not respond to solicitors who offer to help them buy tickets or split winnings – victims of foreign lottery scams have lost thousands of dollars. Other topics include foreign money offers, like the “Nigerian” scam, and foreign check overpayment schemes.
OnGuardOnline.gov also covers other online safety topics, including spyware, identity theft, phishing, and spam scams. The multimedia, interactive consumer education campaign was launched last fall by the FTC and a partnership of other federal agencies and the technology industry. There is no copyright on the quizzes or other information on OnGuardOnline.gov; the information can be downloaded by companies and other organizations to use in their own computer security programs.
Officials from the Federal Trade Commission and Canadian consumer protection agencies met in Ottawa this week to kick off March as Fraud Prevention Month. The initiative is part of an international effort to raise public awareness worldwide of the dangers of fraud, while educating the public on how to recognize and report it. The representatives from the FTC, Canada’s Competition Bureau, the Royal Canadian Mounted Police, and the Ontario Provincial Police explained how cross-border partnerships are key in fighting the global scourge of fraud.
“People operating frauds are increasingly using international borders to try and escape the consequences of their actions,” said C. Steven Baker, Director of the FTC’s Midwest Region. “The U.S. and Canada are leading the world in showing that we can work together and protect consumers on both sides of the border.”
As part of the initiative, the FTC today is launching a new section about cross-border online fraud on www.OnGuardOnline.gov, an educational site with information to help computer users be safe online. Available in both English and Spanish, the site offers information about common scams and tips for avoiding them, as well as instructions on reporting fraud. For example, consumers should not respond to solicitors who offer to help them buy tickets or split winnings – victims of foreign lottery scams have lost thousands of dollars. Other topics include foreign money offers, like the “Nigerian” scam, and foreign check overpayment schemes.
OnGuardOnline.gov also covers other online safety topics, including spyware, identity theft, phishing, and spam scams. The multimedia, interactive consumer education campaign was launched last fall by the FTC and a partnership of other federal agencies and the technology industry. There is no copyright on the quizzes or other information on OnGuardOnline.gov; the information can be downloaded by companies and other organizations to use in their own computer security programs.
Monday, March 06, 2006
Rolex and DOJ Settle Anti-Competition Suit, Decades-Old Case Revisited
Rolex Watch U.S.A. Inc. has agreed to pay $750,000 as part of a settlement with the Department of Justice that resolves Rolex’s alleged violations of a 1960 consent decree that prohibited U.S. importers of Swiss watches and watch parts from engaging in anticompetitive practices in the U.S. watch industry.
The Department filed a petition in the U.S. District Court for the Southern District of New York asking it to find Rolex in civil contempt of the decree. The Department also filed a settlement agreement and order, subject to court approval, that would resolve its antitrust concerns. Part of the $750,000 payment to the United States includes reimbursement to the government for the cost of its investigation into Rolex’s alleged violations. During its investigation of Rolex’s alleged decree violations, the Department determined that, as a result of significant changes in the watch industry during the past 45 years, the decree is no longer necessary to protect competition and therefore should be terminated.
“The rule of law requires companies to abide by a court’s lawful orders or pay the consequences. Even when a company believes that a court’s order is no longer necessary to serve its original purposes, the appropriate recourse is to ask the court to modify its order, not to flout it,” said Thomas O. Barnett, Assistant Attorney General in charge of the Department’s Antitrust Division.
In its filing, the Department said that certain provisions of a Rolex policy statement violate the decree by placing restrictions on the use, resale, and pricing of watch parts purchased from Rolex. According to the Department, Rolex’s policy is not to sell watch parts to independent watch repair facilities or watchmakers unless the watchmakers agree that they will not use the parts in any watch that has non-Rolex parts or accessories. Rolex’s policy also prohibits watchmakers from reselling spare watch parts under any circumstance and from charging an excessive markup for watch parts used in repairs. The Department alleges that these provisions of Rolex’s policy violate the terms of the 1960 decree.
The Department also filed with the court a memorandum consenting to termination of the decree, subject to notice and an opportunity for public comment. Nevertheless, Rolex must still comply with the terms of the consent decree until and if the decree is terminated.
In 1954, the Department filed an antitrust complaint alleging a wide-ranging conspiracy between Swiss and U.S. watch companies to fix prices, terms, and conditions of the sale of watches and watch parts, to restrict the manufacturing of watches and watch parts in the United States, and to control the export of watches and watch parts into the United States. More than 20 defendants were named in the complaint, including The American Rolex Watch Corporation, which today is known as Rolex Watch U.S.A. Inc.
On March 9, 1960, just prior to trial, the United States and 11 of the defendants, including Rolex, entered into a consent decree that resolved the complaint’s antitrust concerns. Under the decree, the defendants are prohibited from placing certain restrictions on the use of watch parts or watchmaking machines purchased from the defendants. The decree also prohibits the defendants from entering into certain agreements that fix or control the terms or conditions on which watches, watch parts, or watchmaking machines purchased from the defendants may be resold. In addition, the defendants are prohibited under the decree from entering into certain agreements that fix or control the markup or the maximum or minimum price at which watches, watch parts, or watchmaking machines purchased from the defendants may be resold.
Rolex Watch U.S.A. Inc. has agreed to pay $750,000 as part of a settlement with the Department of Justice that resolves Rolex’s alleged violations of a 1960 consent decree that prohibited U.S. importers of Swiss watches and watch parts from engaging in anticompetitive practices in the U.S. watch industry.
The Department filed a petition in the U.S. District Court for the Southern District of New York asking it to find Rolex in civil contempt of the decree. The Department also filed a settlement agreement and order, subject to court approval, that would resolve its antitrust concerns. Part of the $750,000 payment to the United States includes reimbursement to the government for the cost of its investigation into Rolex’s alleged violations. During its investigation of Rolex’s alleged decree violations, the Department determined that, as a result of significant changes in the watch industry during the past 45 years, the decree is no longer necessary to protect competition and therefore should be terminated.
“The rule of law requires companies to abide by a court’s lawful orders or pay the consequences. Even when a company believes that a court’s order is no longer necessary to serve its original purposes, the appropriate recourse is to ask the court to modify its order, not to flout it,” said Thomas O. Barnett, Assistant Attorney General in charge of the Department’s Antitrust Division.
In its filing, the Department said that certain provisions of a Rolex policy statement violate the decree by placing restrictions on the use, resale, and pricing of watch parts purchased from Rolex. According to the Department, Rolex’s policy is not to sell watch parts to independent watch repair facilities or watchmakers unless the watchmakers agree that they will not use the parts in any watch that has non-Rolex parts or accessories. Rolex’s policy also prohibits watchmakers from reselling spare watch parts under any circumstance and from charging an excessive markup for watch parts used in repairs. The Department alleges that these provisions of Rolex’s policy violate the terms of the 1960 decree.
The Department also filed with the court a memorandum consenting to termination of the decree, subject to notice and an opportunity for public comment. Nevertheless, Rolex must still comply with the terms of the consent decree until and if the decree is terminated.
In 1954, the Department filed an antitrust complaint alleging a wide-ranging conspiracy between Swiss and U.S. watch companies to fix prices, terms, and conditions of the sale of watches and watch parts, to restrict the manufacturing of watches and watch parts in the United States, and to control the export of watches and watch parts into the United States. More than 20 defendants were named in the complaint, including The American Rolex Watch Corporation, which today is known as Rolex Watch U.S.A. Inc.
On March 9, 1960, just prior to trial, the United States and 11 of the defendants, including Rolex, entered into a consent decree that resolved the complaint’s antitrust concerns. Under the decree, the defendants are prohibited from placing certain restrictions on the use of watch parts or watchmaking machines purchased from the defendants. The decree also prohibits the defendants from entering into certain agreements that fix or control the terms or conditions on which watches, watch parts, or watchmaking machines purchased from the defendants may be resold. In addition, the defendants are prohibited under the decree from entering into certain agreements that fix or control the markup or the maximum or minimum price at which watches, watch parts, or watchmaking machines purchased from the defendants may be resold.
Friday, March 03, 2006
IRS Commissioner Attacks Charities
In a February 24 speech at the City Club of Cleveland, IRS Commissioner Mark Everson criticized charities that became involved in politics. The appropriate excerpts from his speech:
Nearly three-quarters of the 82 examinations completed to date have substantiated that the charities or churches engaged in prohibited political activity. Most of these exams concerned one-time, isolated occurrences of prohibited campaign activity, which the IRS addressed through written advisories to the organizations. In three cases — involving charities but not churches — the prohibited activity was egregious enough to warrant the IRS proposing the revocation of the organizations’ tax-exempt status.
Some of the specific instances of political intervention alleged and examined include the following:
Distribute expanded educational materials based on findings in the 2004 cycle, making them widely available early in the coming election cycle,
1. Start our enforcement efforts earlier in the election year to ensure consistent and timely referral selections and examinations,
2. Publicize our efforts in advance so there is no surprise to organizations, and
3. Augment the dedicated and trained team working on political intervention to assure prompt handling of project cases.
In a February 24 speech at the City Club of Cleveland, IRS Commissioner Mark Everson criticized charities that became involved in politics. The appropriate excerpts from his speech:
Nearly three-quarters of the 82 examinations completed to date have substantiated that the charities or churches engaged in prohibited political activity. Most of these exams concerned one-time, isolated occurrences of prohibited campaign activity, which the IRS addressed through written advisories to the organizations. In three cases — involving charities but not churches — the prohibited activity was egregious enough to warrant the IRS proposing the revocation of the organizations’ tax-exempt status.
Some of the specific instances of political intervention alleged and examined include the following:
- • Charities, including churches, distributing diverse printed materials that encouraged their members to vote for a particular candidate (24 alleged; 9 determined),
- Religious leaders using the pulpit to endorse or oppose a particular candidate (19 alleged; 12 determined),
- Charities, including churches, endorsing or opposing a candidate on their website or through links to another website (15 alleged; 7 determined),
- Charities, including churches, disseminating improper voter guides or candidate ratings that encourage readers to vote for particular candidates (14 alleged; 4 determined),
- Charities, including churches, placing signs on their property that show they support a particular candidate (12 alleged; 9 determined),
- Charities, including churches, giving improperly preferential treatment to certain candidates by permitting them to speak at functions (11 alleged; 9 determined), and
- Charities, including churches, making cash contributions to a candidate’s political campaign (7 alleged; 5 determined).
Distribute expanded educational materials based on findings in the 2004 cycle, making them widely available early in the coming election cycle,
1. Start our enforcement efforts earlier in the election year to ensure consistent and timely referral selections and examinations,
2. Publicize our efforts in advance so there is no surprise to organizations, and
3. Augment the dedicated and trained team working on political intervention to assure prompt handling of project cases.
Thursday, March 02, 2006
Wal-Mart Bank Hearings To Be Held This Spring
The Federal Deposit Insurance Corporation (FDIC) has scheduled public hearings in April in the Washington, D.C. area, and the Kansas City, Missouri, metro area on the application for federal deposit insurance filed on behalf of the proposed Wal-Mart Bank.
On July 19, 2005, an application for federal deposit insurance was submitted to the FDIC by Wal-Mart Bank, a proposed Industrial Loan Company (ILC) headquartered in Salt Lake City, Utah. ILCs are state banks that are supervised and insured by the FDIC.
There has been considerable public interest in the application. The FDIC believes that public participation will provide valuable insight into the issues presented by the application and will serve the public interest. The FDIC is interested in obtaining the views of the general public, the financial services industry and other industry trade groups, public interest groups, state financial institution supervisors, other state authorities, and any other interested parties.
The hearing in the Washington, D.C., area will be held on Monday and Tuesday, April 10-11, from 9:00 a.m. to 5:30 p.m. The hearing in the Kansas City metro area will be held on Tuesday and Wednesday, April 25-26, from 9:00 a.m. to 5:30 p.m. The exact locations of the hearings will be announced later on the FDIC's Web site. The presiding officer for these hearings will be the FDIC's Chief Operating Officer John F. Bovenzi. Other FDIC senior management officials will be designated as hearing officers at a later date.
Anyone interested in making an oral presentation at the hearings must deliver a written request to the FDIC no later than 5:00 p.m., Friday, March 10, and deliver a copy of the written statement and a two-page (or shorter) summary to the FDIC no later than 5:00 p.m., Tuesday, March 28. Participants generally will be limited to a 5-minute oral presentation at the hearing. There is no limit on the length of a participant's written statement. Opportunities to make an oral presentation at the hearing are limited; not all requests may be granted.
Anyone interested in submitting a written statement without making an oral presentation at the hearing may do so. All such statements must be received by the FDIC no later than 5:00 p.m., Tuesday, March 28. Attendance at the hearing is not required in order to submit a written statement.
Requests to make oral presentations and written statements can be delivered to the FDIC by e-mail, mail or hand-delivery -- e-mail: publichearing@fdic.gov; mail: Robert E. Feldman, Executive Secretary, 550 17th Street, N.W., Washington, D.C. 20429; or hand-delivery: Guard station at the rear of 550 17th Street (located on F Street, N.W.) on business days between 7:00 a.m. and 5:00 p.m.
The Federal Deposit Insurance Corporation (FDIC) has scheduled public hearings in April in the Washington, D.C. area, and the Kansas City, Missouri, metro area on the application for federal deposit insurance filed on behalf of the proposed Wal-Mart Bank.
On July 19, 2005, an application for federal deposit insurance was submitted to the FDIC by Wal-Mart Bank, a proposed Industrial Loan Company (ILC) headquartered in Salt Lake City, Utah. ILCs are state banks that are supervised and insured by the FDIC.
There has been considerable public interest in the application. The FDIC believes that public participation will provide valuable insight into the issues presented by the application and will serve the public interest. The FDIC is interested in obtaining the views of the general public, the financial services industry and other industry trade groups, public interest groups, state financial institution supervisors, other state authorities, and any other interested parties.
The hearing in the Washington, D.C., area will be held on Monday and Tuesday, April 10-11, from 9:00 a.m. to 5:30 p.m. The hearing in the Kansas City metro area will be held on Tuesday and Wednesday, April 25-26, from 9:00 a.m. to 5:30 p.m. The exact locations of the hearings will be announced later on the FDIC's Web site. The presiding officer for these hearings will be the FDIC's Chief Operating Officer John F. Bovenzi. Other FDIC senior management officials will be designated as hearing officers at a later date.
Anyone interested in making an oral presentation at the hearings must deliver a written request to the FDIC no later than 5:00 p.m., Friday, March 10, and deliver a copy of the written statement and a two-page (or shorter) summary to the FDIC no later than 5:00 p.m., Tuesday, March 28. Participants generally will be limited to a 5-minute oral presentation at the hearing. There is no limit on the length of a participant's written statement. Opportunities to make an oral presentation at the hearing are limited; not all requests may be granted.
Anyone interested in submitting a written statement without making an oral presentation at the hearing may do so. All such statements must be received by the FDIC no later than 5:00 p.m., Tuesday, March 28. Attendance at the hearing is not required in order to submit a written statement.
Requests to make oral presentations and written statements can be delivered to the FDIC by e-mail, mail or hand-delivery -- e-mail: publichearing@fdic.gov; mail: Robert E. Feldman, Executive Secretary, 550 17th Street, N.W., Washington, D.C. 20429; or hand-delivery: Guard station at the rear of 550 17th Street (located on F Street, N.W.) on business days between 7:00 a.m. and 5:00 p.m.
Wednesday, March 01, 2006
Book-of-the-Month Club Fined For Do Not Call Violations
In the most recent case brought against a company for failing to stop calling consumers who asked to be put on the company’s own do not call list, the Federal Trade Commission today announced that book club direct marketer Bookspan will pay a $680,000 civil penalty to settle the Commission’s charges. The Commission also alleged that Bookspan called more than 100,000 consumers on the National Do Not Call (DNC) Registry. The complaint and proposed order were filed in court today by the U.S. Department of Justice on the Commission’s behalf.
The FTC alleged that Bookspan, a partnership of Book of the Month Club Holdings, LLC and Doubleday Direct, Inc., called tens of thousands of consumers who previously asked to be put on its own (“entity-specific”) do not call list, and also unlawfully called consumers on the DNC Registry. The court order settling the case bars the company from violating the FTC Act and Telemarketing Sales Rule (TSR) in the future. The DNC Rule is part of the Commission’s TSR provisions.
“The National Do Not Call Registry and company-specific do not call lists give consumers a choice – and a voice – about whether they want telemarketing calls,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “When consumers speak, companies must honor their requests. It’s not only good business, it’s also the law.”
Case Background
Bookspan, based in Garden City, New York, is a book seller and telemarketer that initiates outbound calls to consumers in an attempt to sell its products. The company primarily markets and sells its books through subscriptions to book clubs. Consumers who agree to join one of the clubs typically receive several books at a reduced price if they agree up-front to buy additional books later at regular club prices. In its telemarketing calls to members, the company also solicits members to buy additional products or to re-enlist in one of its clubs.
According to the FTC, between October 2003 and August 2004, Bookspan and its telemarketers made more than 100,000 calls to consumers registered on the National DNC Registry. While the DNC Rule exempts calls to consumers with whom a company has an “established business relationship,” the Commission alleges that Bookspan did not have such a relationship with these potential customers.
During the same period, the FTC alleges, Bookspan called tens of thousands of consumers who had requested that they be added to its entity-specific do not call list, including some who were on the DNC Registry. While the company has implemented procedures to ensure it is not calling consumers who specifically asked not to be called, the FTC’s complaint states these procedures did not prevent tens of thousands of phone calls to consumers who had said they did not wish to receive calls made by, or on behalf of, Bookspan.
Terms of the Court Order
The stipulated final order settling the charges against Bookspan prohibits the company from violating the FTC Act and the TSR in connection with its telemarketing campaigns. It also specifically prohibits Bookspan from violations related to the National DNC Registry and requires the company to pay a civil penalty of $680,000. The order also contains standard record-keeping and monitoring terms to ensure Bookspan’s compliance with its terms.
The Commission vote approving the complaint against defendant Bookspan was 4-0. The complaint and stipulated final order were filed by the U.S. Department of Justice on the FTC’s behalf on February 23, 2006, in the U.S. District Court for the Eastern District of New York, and require the signature of the judge.
In the most recent case brought against a company for failing to stop calling consumers who asked to be put on the company’s own do not call list, the Federal Trade Commission today announced that book club direct marketer Bookspan will pay a $680,000 civil penalty to settle the Commission’s charges. The Commission also alleged that Bookspan called more than 100,000 consumers on the National Do Not Call (DNC) Registry. The complaint and proposed order were filed in court today by the U.S. Department of Justice on the Commission’s behalf.
The FTC alleged that Bookspan, a partnership of Book of the Month Club Holdings, LLC and Doubleday Direct, Inc., called tens of thousands of consumers who previously asked to be put on its own (“entity-specific”) do not call list, and also unlawfully called consumers on the DNC Registry. The court order settling the case bars the company from violating the FTC Act and Telemarketing Sales Rule (TSR) in the future. The DNC Rule is part of the Commission’s TSR provisions.
“The National Do Not Call Registry and company-specific do not call lists give consumers a choice – and a voice – about whether they want telemarketing calls,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “When consumers speak, companies must honor their requests. It’s not only good business, it’s also the law.”
Case Background
Bookspan, based in Garden City, New York, is a book seller and telemarketer that initiates outbound calls to consumers in an attempt to sell its products. The company primarily markets and sells its books through subscriptions to book clubs. Consumers who agree to join one of the clubs typically receive several books at a reduced price if they agree up-front to buy additional books later at regular club prices. In its telemarketing calls to members, the company also solicits members to buy additional products or to re-enlist in one of its clubs.
According to the FTC, between October 2003 and August 2004, Bookspan and its telemarketers made more than 100,000 calls to consumers registered on the National DNC Registry. While the DNC Rule exempts calls to consumers with whom a company has an “established business relationship,” the Commission alleges that Bookspan did not have such a relationship with these potential customers.
During the same period, the FTC alleges, Bookspan called tens of thousands of consumers who had requested that they be added to its entity-specific do not call list, including some who were on the DNC Registry. While the company has implemented procedures to ensure it is not calling consumers who specifically asked not to be called, the FTC’s complaint states these procedures did not prevent tens of thousands of phone calls to consumers who had said they did not wish to receive calls made by, or on behalf of, Bookspan.
Terms of the Court Order
The stipulated final order settling the charges against Bookspan prohibits the company from violating the FTC Act and the TSR in connection with its telemarketing campaigns. It also specifically prohibits Bookspan from violations related to the National DNC Registry and requires the company to pay a civil penalty of $680,000. The order also contains standard record-keeping and monitoring terms to ensure Bookspan’s compliance with its terms.
The Commission vote approving the complaint against defendant Bookspan was 4-0. The complaint and stipulated final order were filed by the U.S. Department of Justice on the FTC’s behalf on February 23, 2006, in the U.S. District Court for the Eastern District of New York, and require the signature of the judge.
