Professional development

Do you know the best ways you as an investor can get cheated?

Assets in Section 529 college savings plans rose to an estimated $55.4 billion at the end of the first quarter, according to data released by the nonprofit College Savings Foundation. The quarterly asset total was up 6 percent from an estimated $52.3 billion at the end of 2004, and up 38.6 percent from the first quarter 2004 total of $40.0 billion.

Chief financial officers' optimism about the economy and their own companies' prospects is the lowest it has been during the past 12 months, according to a survey of Financial Executives International members.

American Express Financial Advisors Inc. will pay New Jersey $5 million and implement company-wide reforms to address allegations that it failed to reasonably supervise its financial advisors. The settlement follows revelations that a financial advisor in AEFA's Voorhees, N.J., office stole more than $400,000 from at least 22 clients. The New Jersey Bureau of Securities discovered the theft, and expanded its investigation with the uncovering of widespread problems involving AEFA's failure to supervise financial advisors within its franchise offices. "In investigating and prosecuting this individual, we identified a larger issue of inadequate supervision of the company's financial advisors," said New Jersey Attorney General Peter C. Harvey. "To its credit, American Express has worked cooperatively with our office to address deficiencies in its oversight of financial advisors." Harvey vowed to continue his scrutiny of financial advisory services. "We are taking a hard look at the industry," he added. "Where we find firms failing in this area and the failures are significant, we will be imposing major penalties and demanding significant reforms."

Financial Executives International, a 15,000-member trade group for chief financial officers and other senior financial personnel has elected its new slate of officers. Robert Walker, former CFO of Agilent Technologies, will serve as chairman, while Richard Schrader, executive vice president and CFO of Parsons Brinckerhoff Inc., in New York, will become vice chairman. Additional officers include: Alexis Dow, elected auditor, metro, regional government in Portland, Ore., and Joseph DiLorenzo, co-founder and manager, M/D Group LLC, in Humarock, Mass., who will serve as vice presidents at large. Gerald Urich, corporate assistant controller, The Hershey Co., Hershey, Pa., will serve as treasurer. Jeffrey Curtiss, senior vice president and CFO, Service Corp. International, Houston, will become secretary.Mary Jo Green, immediate past FEI chairman, and senior vice president and treasurer, Sony Corp. of America, New York, and second past FEI chairman H. Stephen Grace, Jr., president of H.S. Grace & Co., Houston, will continue in their capacities as directors-at-large. Joan Netzel, first vice president, audit relationship manager for SunTrust Banks Inc., Atlanta, will remain as chairman of the Board of Trustees for Financial Executives Research Foundation -- FEI's research affiliate. The FEI officers slate began officially July 1.

In a divisive 3-2 vote, the Securities and Exchange Commission amended and re-approved a proposed rule requiring the directors of mutual funds to be independent that had been ruled against by a federal court a little more than a week ago. Ruling in a suit brought by the U.S. Chamber of Commerce, the court said that the commission had not taken into account any alternatives and did not consider the costs of the rule, which would require that at least 75 percent of a fund's directors be independent. To address the court's concerns, the amended rule added details about compliance costs and other matters. "We've done the right thing," SEC Chairman William Donaldson said in a statement, adding that the SEC had laid out in detail what implementation would costs funds, and that it had concluded that simply disclosing whether or not directors were independent would not be adequate. Yesterday's vote was seen by some as a rush to get the rule implemented, since Donaldson is due to step down today, thus changing the balance of opinion at the commission. The Chamber of Commerce promised to sue again.

In a deal motivated in part by stricter regulation, Citigroup announced Friday that it will swap its asset management business for the broker/dealer business of Baltimore-based Legg Mason. Citi will get $1.5 billion in common and preferred Legg Mason shares as part of the $3.7 billion deal, which lets the company ditch the less-profitable business of creating its own asset management products, while avoiding the conflict of interest of having its sales force promote both in-house and external funds. Under a separate arrangement, Citi will continue to be able to offer its clients its asset management products. Legg Mason will gain approximately $437 billion of assets under management. The deal, which had been under discussion for some time, is expected to close toward the end of the year. Separately, Legg Mason announced that it was paying $800 million for 80 percent of hedge fund company Permal Group, with an option to buy the rest. Permal is one of the largest fund-of-funds operators in the industry, with around $20 billion under management.

H.B. 492, a bill requiring personal finance education for high school students in Texas, has been signed into law by Gov. Rick Perry. The bill, which had the support of the Texas Society of CPAs, was first introduced in the Texas House of Representatives. Prior to its passage, TSCPA chairman Ed Polansky had testified in favor of the legislation in March. Polansky said that the TSCPA would help school districts comply with the bill by continuing to make available the multi-lesson curriculum guide that was developed by the American Institute of CPAs. Texas now becomes the eighth state to require personal finance education for high school graduation, joining Alabama, Georgia, Idaho, Illinois, Kentucky, New York and Utah.

In a 3-0 ruling, a federal appeals court overturned a Securities and Exchange Commission ruling that required at least 75 percent of mutual fund directors to be independent of the fund company. According to published reports, the appellate court ruled that the regulator had the authority to adopt the rule; however, it maintained that the commission had not considered any alternatives and did not consider the costs of such a rule. Under that mandate, it was estimated that roughly 3,700 funds would have to seek new chairmen. The rule was to go into effect next year. With the decision, the matter will again to back to the commission, but it is not expected to be reviewed until a permanent replacement for Chairman William Donaldson is appointed. Donaldson will step down June 30.

Frank Abagnale Jr., the convicted forger whose life was chronicled in the movie "Catch Me If You Can," told a crowd of CPAs and attorneys that one of the reasons that the annual losses from white-collar crime now top $660 billion -- roughly twice the budget of the U.S. military -- is the alarming lack of ethics, in terms of both formal company guidelines and curricula in school."Every company should have a code of ethics that they give to employees," said Abagnale, the keynote speaker at an anti-fraud conference sponsored by the New York State Society of CPAs and the Foundation for Accounting Education. "And it should be part of the educational curriculum. They don't teach ethics in school."He said that executives at companies are six times more likely to commit fraud than managers, and 14 times more likely than rank-and-file employees. To illustrate the magnitude of modern fraud and theft, Abagnale said that bank robberies last year constituted some $64 million. By contrast, American Express alone recorded $2.5 billion in consumer fraud losses."It's 4,000 times easier to do today what I did 40 years ago," said Abagnale, who served time in prison for forgery and fraud, before becoming a nationally known security consultant to banks and Fortune 500 companies. "Technology has made that possible. Cellphones can snap a picture of someone writing out a check and capture all the information that a forger needs." He added that the evolution and sophistication of printers and scanners have made check copying so simple that even 12-year-olds have been charged with forgery. In 2004, check fraud reached $19 billion. And in addressing the frightening rise in identity theft, Abagnale said that there are now several Web sites that offer personal information -- including a subject's Social Security numbers -- for a small fee. "Identity theft is only limited to one's imagination."

In just-released Revenue Ruling 2005-40, the Internal Revenue Service has underscored the fact that risk distribution must be present for smaller arrangements to qualify as insurance for federal income tax purposes. The ruling does not call into question the vast majority of insurance contracts issued by commercial insurance companies in the ordinary course of business. Since the Supreme Court's 1941 decision in Helvering v. LeGierse, both risk shifting and risk distribution have been required for an arrangement to constitute insurance for federal income tax purposes. The ruling concludes that an arrangement with an entity that "insures" the risks of only one policyholder does not qualify as insurance for tax purposes, because the risks are not distributed among other policyholders. The ruling also explains how this conclusion applies to single-member limited liability companies, which in some cases are treated as entities separate from their owners and in other cases are disregarded. Qualification of an arrangement as insurance may affect whether the issuer is taxed as an insurance company and whether or when amounts paid under the arrangement may be deductible. If an arrangement does not qualify as insurance, it may instead be characterized as a deposit, a loan, a contribution to capital or an indemnity arrangement other than an insurance contract. The ruling was accompanied by Notice 2005-49, soliciting comments from the public on additional standards relating to what constitutes insurance.

In May 2005, a U.S. House of Representatives Energy and Commerce subcommittee on health concluded that the rising cost of long-term health care, coupled with the impending surge of Baby Boomer retirees, could cripple the country financially unless changes are made.Testifying before the subcommittee, Dr. Judy Feder, dean of public policy at Georgetown University, stated that in the years ahead, just 30 percent of post-65-year-olds will die without needing long-term care. Twenty percent of that age group will require more than five years of care.

The recent bid for Ameritrade by rival E*Trade Financial put the online brokerage world on the front page, as two of the largest firms in the business involved in a potential merger might say something about the current state of the brokerage industry.

NASD Fines Raymond James $750K: The NASD has censured and fined Raymond James & Associates Inc. and Raymond James Financial Services Inc. $750,000 for violations related to the firms' fee-based brokerage business.As part of the settlement, the firms will also pay restitution to 190 customers totaling $138,000. The firms neither admitted nor denied the charges.

412(i) plans continue to generate both interest and caution following recent Internal Revenue Service and Treasury Department actions to crack down on a handful of abusive schemes that had cropped up in this marketplace.

Taxpayers are generally allowed to deduct the fair market value of property that they contribute to a charity.

In response to proposed new rules by the National Association of State Boards of Accountancy, two professors at Kansas State University have issued a national call for better business ethics education and better accounting ethics education.

The Virginia Society of CPAs has teamed with professional education and corporate training provider SmartPros Ltd. on online ethics continuing professional education.

Assets in Section 529 college savings plans rose to an estimated $55.4 billion at the end of the first quarter, according to data released by the nonprofit College Savings Foundation.

Eisner Retirement Solutions, a unit of regional CPA and business advisory firm Eisner, unveiled a free turnkey product to assist plan sponsors in complying with the Department of Labor's mandatory individual retirement account rollover requirements that were laid out in the Economic Growth and Tax Relief Act of 2001.