SEC Sanctions Broker-Dealer for Unsuitable 529 College Savings Plan Recommendations
FOR IMMEDIATE RELEASE
Washington, D.C., Nov. 15, 2006 - The Securities and Exchange Commission announced today that 1st Global Capital Corp., a Dallas broker-dealer, will pay a $100,000 penalty and consent to findings that it made unsuitable recommendations and sales of units of tax-advantaged qualified tuition savings plans, commonly known as Section 529 College Savings Plans.
The order issued by the Commission finds that between 2001 and 2004, 1st Global recommended and sold investments in 529 plan units without understanding and evaluating the comparative costs for its customers. The order also finds that 1st Global's supervisory procedures were inadequate to determine whether its recommendations of particular classes of 529 plan units were suitable to investors, and that, to the extent the firm had procedures, they were ineffectively implemented.
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "This case demonstrates the SEC's continuing attention to the area of 529 College Savings Plans and highlights the importance of understanding the differences between plans and between various classes of units in a particular plan. These choices may have a dramatic effect on the value of the plan when a child reaches college age."
"1st Global failed to understand and analyze the comparative costs of the 529 Plan unit classes they were recommending and selling," said Rose Romero, District Administrator for the Commission's Fort Worth Office. "In a substantial number of the accounts reviewed, 1st Global sold customers products that were more costly and ultimately resulted in significantly less money for their children's education."
The order provides illustrations of the effects of comparative 529 plan unit costs over an anticipated lengthy holding period. For example, one 1st Global customer invested $11,000 each for five-month old twins in Class C units of a popular 529 plan investment. If he had purchased Class A units in the same investment, his investment for each child would be worth an estimated $4,100, or 9%, more than the value of Class C units when the children reach college age, assuming 10% growth. The order also gives illustrations of the effects of unique 529 plan cost structures on comparative unit costs.
The order finds that as a result of its conduct, 1st Global willfully violated Municipal Securities Rulemaking Board Rules G-17 and G-19, and Section 15B(c)(1) of the Securities Exchange Act of 1934, by making unsuitable recommendations in connection with the offer and sale of 529 plan investments. In addition to imposing a $100,000 penalty, the order censures 1st Global and requires it to cease-and-desist from committing or causing any violations of those provisions. 1st Global consented to the entry of the Commission's order without admitting or denying the Commission's findings.
Investors can learn more information about investing in 529 plan units from the SEC's brochure, "An Introduction to 529 Plans," which is available online at http://www.sec.gov/investor/pubs/intro529.htm.
For more information, contact:
Katherine S. Addleman
Associate District Administrator for Enforcement
United States Securities and Exchange Commission
Fort Worth District Office
Additional materials: Administrative Proceeding Release No. 34-54754