Feud Prompts Newsweek To Pull N.J. Bank's Ad

LOS ANGELES - A war of words between California Treasurer Kathleen Brown and a New Jersey bank has prompted Newsweek magazine to pull a bank advertisement that criticizes college savings bonds sold by several states.

Editors withdrew the advertisement this month, a few weeks after Ms. Brown wrote to complain that an earlier ad went too far by alleging that zero-coupon college savings bonds are "unsafe and unsound."

The advertiser, College Savings Bank of Princeton, sought to place the ad to dispute Ms. Brown's assertions.

State Bond Programs

Ms. Brown has promoted zero-coupon bonds as one way to help parents save for college costs. States such as New Jersey and Connecticut have similar programs.

College Savings, which specializes in long-term investment plans to pay for college educations, has placed ads in Newsweek, The Wall Street Journal, and elsewhere to condemn the use of zero coupons for such purposes.

The assertions prompted California's treasurer to lodge a protest shortly before a recent state sale of $40 million in zero-coupon college savings bonds.

Letter to Newsweek

In an Oct. 16 letter to Richard M. Smith, editor-in-chief at Newsweek, Ms. Brown did not directly ask the magazine to discontinue the ads but said, "I hope that Newsweek applies a stricter |truth in advertising' standard in the future."

The bank then developed an ad - which Newsweek rejected - that quoted Ms. Brown's letter to dispute her claims.

Diana Pearson, a spokeswoman for Newsweek, said the magazine decided to pull that ad until it could review Ms. Brown's assertions and draft a reply to her.

"We were taken by surprise when Newsweek decided to pull our ad - we still don't know why," said Peter A. Roberts, chairman of College Savings Bank. He added that Newsweek had approved the ad for publication only two days before.

"I don't see how [Ms. Brown] can go to Newsweek and ask them to suppress our ads," Mr. Roberts said. "You could say this is an abuse of her office."

The bank's CollegeSure certificate pays a variable rate tied to an index of college costs.

Ms. Brown in her letter said zero-coupon bonds are subject to much wider swings in market value than current-interest bonds, but she said the California program is designed for investors who intend to hold the bonds until maturity. "This buy-and-hold intention eliminates any concern for market fluctuation," she wrote.

The bank's savings product and its promotional material have irritated a California investment adviser and newsletter publisher, who said the New Jersey bank should be investigated by the Securities and Exchange Commission.

Zane Mann, publisher of the California Municipal Bond Advisor, alleged in his October issue that the bank's promotional material is "filled with bogus statements about guaranteed yield, blatant misrepresentations about tax liability, complete with misleading graphs and charts using distorted methodology."

Mr. Roberts sent Mr. Mann a letter threatening legal action and requesting a retraction in the newsletter of "malicious and patently false information." Mr. Mann has said he plans no retraction. The New Jersey banker said he has never gotten a complaint from the SEC.

The bond Buyer is a sister publication of American Banker.

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