The original complaint alleges that First Command and certain of its officers and directors violated the Securities Exchange Act of 1934 and the Investment Advisers Act. The complaint further alleges that the defendants' conduct also violated the Texas Deceptive Trade Practices Act, California's Unfair Competition Act and First Command's fiduciary duties to investors. First Command is a seller of investment plans and insurance principally to military personnel.
More specifically, the complaint alleges that, during the Class Period, defendants through an affinity marketing scheme made false and misleading statements regarding First Command's investment plans and insurance. Specifically, the case involves First Command's marketing and sales of indirect interests in mutual-fund shares through an SIP. The defendants are alleged to have made false statements and concealed the truth with respect to the SIP, the effect of the charges associated with this investment, and the investment alternatives. The true facts, which were known by each of the defendants, but concealed from the investing public during the Class Period are alleged to be as follows: (a) the First Command SIP was among the worst, if not the worst, investment of its kind for the Class Members; (b) First Command's SIPs have no redeeming financial upside potential and the same minimum downside risks as comparable investments; (c) an investment in a Thrift Savings Plan ("TSP") was an undisputedly better investment alternative for military personnel than First Command's SIP; (d) only 43% of First Command clients retained their SIP long enough to even receive their principal back; (e) the recommended whole life insurance plans coupled with the SIP were inappropriate for the Class Members; (f) First Command did not tailor investment plans to the specific needs of each Class Member; (g) First Command steered Class Members to SIPs based solely on fact that First Command received substantially more in fees (50% of the first year's deposit) from the SIPs; (h) the majority of First Command customers have not completed the 15-year period of the SIP; (i) the Family Financial Plan ("FFP") was not an objective and truthful investment plan; (j) the long-term costs of owning no-load funds are substantially lower than the costs of owning load funds such as SIPs; (k) the no-load investment index funds offered by the TSP had substantially lower net expense ratios than even a no-load fund and most certainly the SIPs sold by First Command; and, (l) there was no empirical evidence to support the inference that SIPs will outperform other funds due to low "cash-flow volatility." As a result of the defendants' false and misleading statements, and concealment of facts known to them, Class Members were placed into unsuitable investments and paid excessive sales commissions and fees to defendants in connection with the purchase of publicly traded securities.
The complaint further alleges that on December 15, 2004 the Securities & Exchange Commission ("SEC") instituted a public administration and cease and desist proceeding against First Command. In response to the SEC proceeding and related disciplinary actions by the National Association of Securities Dealers ("NASD"), First Command submitted an Offer of Settlement which the SEC accepted, and submitted a Letter of Acceptance, Waiver, and Consent to the NASD which provided for restitution only to those customers who, as of December 15, 2004, had already terminated their First Command SIP. As a result, no relief was provided to the Class Members.
Note: The complaint was filed on behalf of all persons who still owned their Systematic Investment Plan (SIP) on December 15, 2004 (Class Members), all amounts paid into First Command's Systematic Investment Plan for indirect interests in mutual-fund shares which had not been withdrawn as of December 15, 2004 (Class Period).
On March 30, 2005, the plaintiff filed a First Amended Complaint terminating certain parties. On June 10, 2005, the Court entered the Order granting the Plaintiffs' motion to appoint lead plaintiffs and granting the motion to approve lead plaintiffs’ choice of lead counsel. That day, the Court also entered the Order denying the defendants’ motion to transfer the action. On February 27, 2006, the defendants filed a motion to dismiss the First Amended Complaint. On April 11, 2006, the Court entered the Order granting in part and denying in part the defendants’ motion to dismiss the First Amended Complaint with leave to amend the complaint. On May 1, 2006, the plaintiffs filed a Consolidated Second Amended Complaint. On May 31, 2006, the defendants filed a motion to dismiss the plaintiffs Consolidated Second Amended Complaint. On July 28, 2006, the Court entered the Order by U.S. District Judge Irma E. Gonzalez granting in part and denying in part the defendants’ motion to dismiss the plaintiffs’ Consolidated Second Amended Complaint. According to the Order, the Court denied the defendants’ motion to dismiss the plaintiffs' 10b-5 claim. Further, the Court dismissed with prejudice the plaintiffs' 12(a)(2) claim as the there appears to be no possibility that plaintiffs could allege a viable 12(a)(2) claim. On April 20, 2007, the plaintiffs filed a motion to certify the class and the Court granted the motion on July 30, 2007. On August 13, 2007 plaintiffs filed a Third Consolidated Amended Complaint, which the defendants answered one week later.
The Court convened a Settlement Conference on August 27, 2008. At the Conference, the parties reached an agreement to resolve the class action subject to preliminary and final approval by the Court. On October 16, 2008, the plaintiffs filed a motion for preliminary approval of settlement. The proposed settlement is in the amount of $12 million in cash. On November 10, 2008, the Court granted preliminary approved of the proposed class settlement.
The Settlement Fairness Hearing was held on March 30, 2009, before Judge Irma E. Gonzalez. At the Hearing, Judge Gonzalez approved the plaintiffs’ motion for final approval of the class settlement and granted the motion for award of attorney fees and costs. According to the Order, the Court determines that an award of attorneys' fees and costs to Class Counsel under common fund doctrine in the collective amount of $3,500,000, representing 30% of the first $10 million in settlement value and 25% of the additional $2 million in settlement value, is fair, reasonable and appropriate.