Investment Advisers Should Update Supervisory Procedures to Address Internal Whistleblower Complaints

October 19, 2010

Michael Loscalso, a former manager for Ameriprise Financial Inc. (“Ameriprise”), who was fired in November of 2009, has brought a suit against the company alleging his employment was wrongfully terminated when he raised concerns to company management about violations of the rules and regulations of the United States Securities and Exchange Commission (“SEC”). 

The complaint filed by Loscalso states that during his employment with Ameriprise, Loscalso reported several violations to management including “incidents related to forgery, fraud, unlicensed sales, unlicensed signing, overcharging for financial planning services, underdelivery of financial planning advice, and breach of client privacy and data security.”  According to Loscalso, Ameriprise executives ignored his reports and did not take appropriate steps to address the violations. 

In the complaint, Loscalso cites one instance where an advisor’s assistant forged the advisors signature on 30 annuity applications and Ameriprise only sent a letter of caution to the advisor despite the serious nature of the offense.  In another, Loscalso states an advisory allowed his assistant to complete trades using the advisors brokerage ID number.

In September and October of 2009, Loscalso notified several members of Ameriprise management that he was considering notifying FINRA, the SEC, and other regulatory agencies due to his concerns about the rules violations and the lack of response by Ameriprise management.  Loscalso was fired on November 5, 2010.  Ameriprise managers cited “failure to supervise his financial advisors” as the cause for Loscalso’s dismissal.

Loscalso originally filed a Sarbanes-Oxley Complaint with the Occupational Safety and Health Administration of the United States Department of Labor on February 2, 2010.  However, as of August 6, 2010 Loscalso he had not received a ruling on his February 2 complaint.  Therefore, on August 6, pursuant to 29 C.F.R. § 1980.114(a), Loscalso notified the Office of Administrative Law Judges that he would seek de novo review of his February 2 complaint by filing an action with the United States District Court for the Eastern District of Pennsylvania.  That complaint was filed on October 8, 2010 and can be accessed by clicking here.

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) enhanced the retaliation penalties and procedures that protect whistleblowers, and extended whistleblower protections to employees of both public and private companies.  Further, the Dodd-Frank Act gives whistleblowers protection from retaliation for making disclosures that are required under all rules, laws, and regulations subject to the SEC’s jurisdiction.  Therefore, RIA Compliance Consultants recommends that all investment adviser firms implement a system to handle internal whistleblower complaints.  If your investment adviser firm needs help implementing complaint procedures or would like help reviewing your existing system, any of our compliance consultants would be happy to assist your investment adviser.

Posted by Bryan Hill
Labels: Whistleblower