Florida Investigating Brokerages At Great Western and Amsouth

Florida, a longtime battleground for banks that sell mutual funds, is heating up again.

The state's attorney general has launched investigations of sales practices at the brokerage units of Great Western Financial Corp. and Amsouth Corp., Assistant Attorney General Rebecca Henry confirmed. At issue: whether the brokerages set out to deceive customers about investment risks.

Past and present employees of the brokerages are being brought in for questioning. The attorney general's office said seven people were sent subpoenas last week in connection with the Great Western investigation. And Amsouth's former brokerage compliance officer, Krikor Naccachian, confirmed that he gave a deposition in mid-November.

Over the past three years, nearly every big bank that sells mutual funds in the Sunshine State has come under fire from regulators, consumers, and in some cases its own brokers. But the investigations of Great Western and Amsouth, begun in October, mark the first time the Florida attorney general has launched a formal probe, a researcher for the agency said.

A spokesman for Great Western, based in Chatsworth, Calif., would not comment Wednesday, saying the company had received the subpoenas one day earlier and needed time to review them.

A spokesman for Amsouth also declined to comment, saying the Birmingham, Ala., bank had not been notified of an investigation by the Florida attorney general. Some details of the Amsouth probe appeared Jan. 15 in the Florida edition of The Wall Street Journal.

The stakes of the probes are high, and not just for the two banks on the hot seat. "If there is evidence of intentional misrepresentation, that could constitute criminal charges," said F. Ronald O'Keefe, a bank and mutual fund lawyer at Hahn Loeser & Parks, Cleveland. And if criminal charges were filed, the result would certainly be regulation of bank investment sales practices "beyond the level we see now."

Under their general jurisdiction to protect consumers, attorneys general usually look into cases of negligence and failure to follow compliance guidelines, Mr. O'Keefe noted.

If the stock market declines, such investigations and lawsuits could accelerate, he added.

But some observers said the probe may not amount to much. The Florida attorney general's office is known for its activism and has been working closely with the state securities commission to police bank brokerage sales practices, said Robert M. Kurucza, a partner in the Washington law firm of Morrison & Foerster.

"More often than not, in the day-to-day operation of a securities business, these issues are addressed with regulators in an informal matter," Mr. Kurucza added. "Most regulatory inquiries never see the light of day."

Both Amsouth and Great Western also face class actions by brokerage customers who claim they were victimized by brokers who failed to disclose investment risks.

Great Western has three suits pending: a class action in Florida, a class action in California, and a separate case in California. The thrift has made an offer to settle the California class action, which has more than 30,000 plaintiffs. A hearing for preliminary approval of the settlement is scheduled Feb. 3.

Amsouth's brokerage has also had some tussles with securities regulators in recent years. The Alabama Securities Commission has been investigating Amsouth Investment Services since late 1995. And last July, the bank paid a $150,000 fine to the National Association of Securities Dealers to settle allegations that its brokerage had violated regulations governing securities sales, record keeping, and commissions.

The Amsouth unit does business in Alabama, Florida, Tennessee. and Georgia.

Mr. Naccachian, Amsouth's former brokerage compliance officer, is becoming a key character in the investigation.

In documents filed with the National Association of Securities Dealers last June, the bank said it had dismissed him four months earlier because he failed "to implement and carry out an effective compliance program."

Mr. Naccachian is fighting that charge in an arbitration proceeding before the NASD. In a telephone interview last week, he maintained that- when he alerted the bank to sales, compliance, and record keeping violations-he was demoted and then fired.

"I want fair and just compensation and vindication of my record," Mr. Naccachian said. "Who would want to hire me after my dismissal?"

He is seeking damages for defamation and the harm to his professional record, which has prevented him from getting a job comparable to the one from which he was fired, he said.

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