One who intends to leave others better off for his having existed.

10/21/13

FINRA Subpoena on Wells Fargo Envision Plans

Attachment A;

Please provide all documents and communications containing "Hartzman" and/or relating to George Hartzman from the beginning of 2012 until the present, including "internal staff analysis and recommendations”, which FINRA declined to provide in response to an FOIA request on June 24, 2013, even though the “agency” is overseen by the Securities and Exchange Commission.

Please provide all documents and communications concerning the examiner’s January 29, 2013 article entitled “Need for asset retention leads to fraud at major bank years after credit crisis" by Ken Schortgen Jr., including internal staff analysis and recommendations.
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Background;

An email from 2012;

From: Jennifer.Luginbill@finra.org Cc: "Varvel, Bryan" Bryan.Varvel@finra.org

George:

I have received this information you provided. I will be ensure our assigned examiner also receives the information to help with his investigation. He may be in touch if he has questions.

Thanks

Jennifer Anne Luginbill
Associate Director
Kansas City District Office
FINRA
120 W. 12th Street, Suite 800
Kansas Ciy, MO 64105
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From: George Hartzman bcc: ajohnson@news-record.com, martinware@msn.com, efcone@mindspring.com, Amanda Lehmert, Jeff Horwitz, Jeff Gauger, Joe Killian, Brian Clarey, editor@carolinapeacemaker.com, tips@businessinsider.com, richard.barron, adunn@charlotteobserver, Zack Matheny, fmickens@wfmy.com, dgclark@news-record.com, Denise.Turner@greensboro, Karl Denninger

Date: Mon, Sep 24, 2012 at 1:42 PM
subject: I take this to mean the issue is under investigation.

This issue has gone from FINRA office of the whistleblower to the NC Secretary of State, Securities Division who referred the case to Atlanta FINRA, which sent it back to DC, who sent it to Kansas City FINRA.

I was on a conference call a few weeks back with about 8 people on the line.

We went through the above attachment.

Anybody feel like reporting a national story yet?
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from: Reicher, Terri to: George Hartzman date: Mon, Jun 24, 2013 at 2:49 PM
subject: FOIA Request

Dear Mr. Hartzman: your June 23 email with the subject line “FOIA Request” was forwarded to me for response. FINRA is a private corporation that is not subject to the Freedom of Information Act, which applies only to government agencies.

Very truly yours,

Terri L. Reicher
Associate Vice President
Associate General Counsel
FINRA
1735 K Street, N.W.
Washington, DC 20006

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Related; George Hartzman Blows Whistle on Wells Fargo’s Envision Plans
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From Ken Schortgen Jr’s January 29, 2013 article;

"Though many [banks] were vital in helping to bring the U.S. monetary system to the brink of collapse with their bad financial bets, ...the industry itself attempted to justify the paying of billions in bonuses to bankers under the guise of the need to retain their talents.

...In 2011, Wachovia bank merged with Wells Fargo, and like all big mergers between corporate entities, choices are made regarding the retention of people, management, and policies each institution followed. Since both banks were intrinsically tied to the government TARP or TAF bailout programs, public perceptions regarding any retention bonuses given in the wake of the taxpayer bailouts were of vital importance.

Thus, a means of creating a retention program for top earning Wells Fargo financial advisers was conceived using a client service program created in 2005. The 4front program was to be used as a backdoor means of retaining financial advisers, and it is here where the fraud and fraudulent actions by Wells Fargo begin. The 4front program, based ‘retention’ bonus payments to financial advisers without calling it a retention bonus. The program, tied to benchmarks created in "Envision" investment/financial plans for households with assets above $250,000, would be the catalyst to provide a bonus structure without giving the perception to the public that direct taxpayer money was going to fund and retain the Wells Fargo Adviser workforce.

...When [laws and statutes overseeing the banking and brokerage industry] are violated, it is supposed to be up to the financial enforcement agencies such as the Securities and Exchange Commission (SEC) and/or the Financial Industry Regulatory Authority (FINRA) to step in and investigate, prosecute, and correct illegal activities that threaten the financial well being of investors and the financial system as a whole.

Enter in the former Vice President of Investments and Fundamental Choice Portfolio Manager, George Hartzman. As a Financial Adviser and asset manager at Wachovia, and later a Wells Fargo Adviser after the year end 2008 merger, George had direct insight as both an adviser to clients, and as a participant in the 4front program.

Hartzman contends that Federal laws and statutes were violated as full disclosure to clients in the Envision plans were not being presented accurately, and misleading information was given to clients in hypothetical projections, which ended up on many client monthly financial statements.
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“I believe Wells Fargo’s executive management created a backdoor retention program that led thousands of brokers to violate fiduciary duties to the firm’s clients, by incentivizing the omission of investment fees in Envision plans subsequently reported on client statements.

If “the overwhelming majority of Envision Plans [did and] do not include investment costs,” and Plans of Record appear on client statements, hundreds of thousands of Wells Fargo clients are currently being illegally misinformed as to probabilities of achieving their financial goals."

George Hartzman
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These actions of transparency, disclosure, and violation of fiduciary duties are outlined in Section 206 of the Investment Advisers Act of 1940. This law states: "It shall be unlawful for any investment adviser, …to employ any device, scheme, or artifice to defraud any client or prospective client; to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client; or... to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative."

How these deceptive practices were enacted can be seen in the following example of Harold Lynn, a hypothetical client with Wells Fargo Advisers which matched the investments of one of George's households he inherited from another adviser.



In the slideshow..., you can see two examples of a data model showing the required benchmarks needed for a Wells Fargo adviser to be eligible for a bonus under 4front, and a more realistic benchmark of "Mr. Lynn's" prospects of investment growth. To qualify for the 4front ‘retention’ bonus, the black dot representing the client’s invested assets had to be above the bottom projected line.


  
One report and data model has the projected growth and balance over time if Mr. Lynn continues on the course of his current investment plan. The other however, gives the projected growth and balance if the 2.5% investment fees Lynn is paying were included at the time the report was printed and issued. These fees, or lack of them in many reports created to obtain the retention bonuses, were excluded by advisers to become eligible for the 4front bonus program by design. False information was/is being provided to Wells Fargo Advisers' clients in order for their financial advisers to qualify 4front bonuses, and to not have them clawed back by the company.
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"Harold Lynn" has $1,000,000 invested, with an annual investment fee of 2.5%.
Both versions have the same data inputs, except the first plan doesn’t include the investment fees, like "the overwhelming majority of Envision Plans.”



“The second includes 2.5% annual investment fees, which Harold is currently paying.”



“…Investment fees are not shown on client presentations unless entered…, even though both presentations include everything else.

…Note the absence of the “Return Discount Rate” under the description of “Investment Assumptions” in the first plan, but not the second…”

Without the investment fees included for Harold’s $1,000,000, the Envision software generated the client compliance approved graph… that indicates a high degree of wonderfulness if Harold continues to do business as usual.



“The problem is that Harold Lynn would need to begin with about $840,000 more to achieve similar results, meaning the plan not including the 2.5% annual investment fees is misleading.”



“To qualify for the 4front bonus, the data model for the plan without investment fees would have qualified, while the plan including fees wouldn’t, meaning in overwhelmingly most cases, there was no way to both get the bonus and include investment fees."

George Hartzman
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Thus Hartzman is saying many Wells Fargo Advisers’ clients were given misleading projections when presented with Envision plans being used by financial advisers to qualify and claim bonuses via the 4front program.

According to Finra rule 2210, actual fraud was committed because the conduct rule states: "All member communications must be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular...service. No member may omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading. No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication. No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.”

“Information may be placed in a legend or footnote only in the event that such placement would not inhibit an investor's understanding of the communication. Members must ensure that statements are clear and not misleading within the context in which they are made, and that they provide balanced treatment of risks and potential benefits. ...Members must consider the nature of the audience to which the communication will be directed and must provide details and explanations appropriate to the audience. Communications may not predict or project performance, ...or make any exaggerated or unwarranted claim, opinion or forecast... Any comparison in retail communications between investments or services must disclose all material differences between them, including (as applicable) investment objectives, costs and expenses..."

As a consequence, Wells Fargo also appears to be making false claims regarding their Envision plans through an advertisement... that states 98% of their clients enrolled in the program 'know where they stand in reaching their financial goals'. Since most of the projections investors were given did not fully disclose fees, this published statement appears to be not only incorrect, but a failure in fiduciary responsibility by Wells Fargo Advisers to many of their advisory clients regarding the potential of their actual investments.

“If “The overwhelming majority of Envision Plans do not include investment costs," I believe the 98% of Wells Fargo Envision Plan clients cited in this advertisement really don’t know where they stand in reaching their financial goals."

George Hartzman



…there have been many high profile banking scandals that have come to light in the public eye, and in some cases, affect trillions of dollars worth of fraud and illegality. ...not a single bank or bank executive has been indicted or convicted for fraud and illegal practices. And judging by way the SEC has ignored warnings, letters, and information given by George Hartzman from his time as a Wells Fargo adviser and Vice President regarding other known fraud in the banking system over TARP and the massive taxpayer bailouts, it is unlikely that the government intends to prosecute criminal activity on Wall Street as there are very few actions being taken to stop the ongoing fraud, and to protect the public in our current financial system.

George is now an independent financial adviser and the President and Chief Economist at Think Professional Education. He has taught CPA and attorney financial ethics for 10 years, and is based out of Greensboro, North Carolina."

Ken Schortgen Jr.
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From the email I sent on September 10, 2012;

"The following shows how financial plans can be manipulated to sell clients and prospects on new investment ideas or staying on a current course with a financial advisor.

If some financial estimates and hypothetical illustrations exclude perpetual levels of data, some information be manipulated to show what may not be true to benefit a few at the expense of many.
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It is difficult to get a man to understand something,
when his salary depends on his not understanding it.

Upton Sinclair

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This information is being emailed to the Federal Reserve Board, Financial Industry Regulatory Authority (FINRA), Securities and Exchange Commission, North Carolina Department of Insurance, North Carolina Department of Justice, Federal Trade Commission, Carolina Secretary of State, Securities Division, Financial Accounting Standards Board, the FBI, American Institute of Certified Public Accountants (AICPA), North Carolina Association of Certified Public Accountants (NCACPA), Consumer Financial Protection Bureau, Public Company Accounting Oversight Board, and the North Consumer Financial Protection Bureau among others.

The example I am using to illustrate this phenomenon involves Wells Fargo's Envision Plans.

I am currently employed with Wells Fargo Advisors in Greensboro, North Carolina.

I have taught the North Carolina CPA Continuing Education Ethics Component.

I have taught the North Carolina Bar Association Ethics CE.

Many well known retail brokerages and investment firms do relatively the same thing, only different.

That the US regulatory infrastructure has done nothing for more than seven months seems revealing, considering the lack of accountability and prosecutions of Wall Street after 2008.

Not one for-profit news organization has reported this story.

A possible reason is the US regulators assigned to this issue as well as any other whistleblower case, won't say whether a case is closed or not, won't say anyone will ever get back to follow up or not, and won't confirm to the press whether or not an investigation is in progress.

For someone who chose to not be a fraud while teaching ethics, I feel as though I have been betrayed by many who earn taxpayer money to keep free market capitalism accountable.

The lack of any confirmation also means my family, friends and coworkers don't know if I am being truthful or not and/or otherwise.

Since first going public with this information in mid June, 2012 after little success with Wells Fargo and our nation's regulatory industry, I have been blacklisted from being able to teach the North Carolina CPA Continuing Education Ethics Component, by the NC State Board of CPA Examiners, which is being appealed to the NC Office of Administrative Hearings.

...I believe I am doing the right thing.

Time for some who can investigate and disseminate to do the same.

I am running out of courage in the face of such apathy.

Please help."


George Hartzman




I contacted some clients after being terminated to have them ask;

From …@triad.rr.com Oct 17 to william.spivey

Dear Mr. Bill Spivey,

Please provide a copy of all historical Envision Plans of Record, including the Investment Plan Assumptions, and Target Zone-Long Term pages.

If investment costs are not included, please provide an "apples to apples" comparison of the last Envision Plan of Record, using asset values and investment costs at that time.

Please do not involve my current broker.

Sincerely,
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What they received was the Envision plans previously completed and the letter below.

Wells Fargo chose not to provide an “apples to apples’ plan including investment costs included in the client’s financial goals represented by the Target Zone’s as asked for;


None of the Envision plans in my book of business included external asset values from other sources.

The problem isn’t the dot, but the Target Zone, which represents client financial goals.
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From: George Hartzman to: Bryan.Varvel@finra.org, Luginbill, Jennifer, anthony.cavallaro@finra.org, brian.craig@finra.org, Jeff Horwitz, Matthew Evans, Mark Sutter, Jeff Gauger, William Cohan, James Howard Kunstler, Karl Denninger, Joy Clairmont, jeffriesj@sec.gov, mashburnm@sec.gov

Date: Tue, Oct 23, 2012 at 10:20 AM Subject: 401k loan

…I would like to be able to tell my wife something.

Not one news outlet will run the story.

My life is in danger as long as it remains under seal.

My family is in danger.

This is not what should have happened to someone trying to do the right thing.

I keep hearing about what the policy is on not commenting about ongoing investigations, but there has to be something someone will do to remove the risks to my family.

Most would think this wouldn't happen in America.

gh
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Others;
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Securities and Exchange Commission Subpoena and Motion for the recusal of SEC Chair Mary Jo White
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http://hartzman.blogspot.com/2013/10/securities-and-exchange-commission.html
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Subpoena; Public Company Accounting Oversight Board, with some Matt Taibbi emails and SEC Chair Mary Jo White
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http://hartzman.blogspot.com/2013/10/subpoena-public-company-accounting.html
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FINRA Subpoena on Wells Fargo Envision Plans
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http://hartzman.blogspot.com/2013/10/finra-subpoena-on-wells-fargo-envison.html
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Hartzman v Wells Fargo Subpoena; Board of Governors of the Federal Reserve System
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http://hartzman.blogspot.com/2013/10/hartzman-v-wells-fargo-subpeona-board.html
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Hartzman v Wells Fargo Advisors Subpoena; Brian Mixdorf, Certified Fraud Examiner, Wells Fargo Corporate Investigations
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http://hartzman.blogspot.com/2013/10/hartzman-v-wells-fargo-advisors.html
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Hartzman v Wells Fargo Subpoena; FBI's Economic Crime Unit Division of the Department of Justice
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http://hartzman.blogspot.com/2013/10/hartzman-v-wells-fargo-subpoena-fbis.html
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Hartzman subpoena for an "third party" investigative review which "Wells Fargo refused to provide"
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http://hartzman.blogspot.com/2013/10/hartzman-v-wells-fargo-advisors-llc.html

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