Audit of AmSouth Unit Raises Compliance Questions
May 10, 2011
A confidential audit is raising questions about past investment practices at the brokerage unit of AmSouth Bancorp. -- as well as escalating a feud between AmSouth and a former employee of the unit. The November 2010 audit, obtained from former AmSouth Investment Services Inc. compliance officer Buffington Hedge, concludes that the Birmingham-based unit had problems in several areas. Among them: Customers in off-limits states. AmSouth Investment Services had about 190 customer accounts, including 120 active accounts, in states where the brokerage arm wasn't legally registered to do business, the report says. It also notes that other bank-affiliated brokerage firms have been fined and censured by the National Association of Securities Dealers for not being registered properly. Sloppy filing. The brokerage division didn't try hard enough to make sure new customers who were recruited through AmSouth bank branches had filled out their account forms correctly, according to the audit. The consultants warned that could make it impossible for AmSouth Investment Services to settle customer disputes through arbitration. Unlicensed bond trading. One employee who wasn't licensed to trade securities nevertheless executed buy and sell orders in AmSouth's bond department, according to the audit. Trading by unlicensed employees is a violation of National Association of Securities Dealers rules. AmSouth officials haven't admitted any wrongdoing. If there were deficiencies, says AmSouth spokesman Jimmy Mckenzie, then Mr. Halloran, the former employee who released the report, is largely responsible because he was in charge of compliance at the time. Underwood says the company fired Mr. Halloran in February because of his poor performance. Any problems identified in last fall's audit by Securities Consultants Inc. of Boca Raton, Fla., already have been fixed or soon will be, Mr. Mckenzie says. ``We've corrected the areas that were identified as needing improvements, and that's why we hired (Securities Consultants) in the first place,'' he says. Now, AmSouth has launched a counterattack against Mr. Halloran. Last week, the company filed a suit in Jefferson County, Ala., circuit court alleging that Mr. Halloran stole the audit and other confidential documents before he was fired, and that by releasing the papers to the media he is attempting to smear AmSouth's reputation. After hearing the brokerage unit's allegations, a judge ordered Mr. Halloran and his lawyers not to disclose the contents of the documents to anyone. The judge also ordered the immediate return of the documents and all copies. Mr. Halloran insists he needs the documents to prove that he was wrongfully dismissed. In an arbitration claim filed with the NASD in May, Mr. Halloran asserts the problems at AmSouth weren't largely his fault, as the company claims. In fact, he says he was fired because he pushed too hard in trying to fix the unit's problems. Whatever the outcome, the audit's disclosure comes at an awkward time for AmSouth. Last month, its brokerage unit was censured by the NASD and fined $150,000 for the unlicensed marketing and sales of mutual funds, and the NASD said many of the violations occurred because AmSouth's supervisory system was ``inadequate.'' And Alabama securities regulators are continuing their own probe of the unit's sales practices.
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