Posted on: Monday, January 24, 2005

MILITARY UPDATE

By Tom Philpott

An estimated 13,000 military investors who bought and later terminated a "Systematic Investment Plan" marketed by First Command Financial Planning Inc. of Fort Worth, Texas, are due restitution payments in the coming weeks that likely will average a little over $300 per person.

Letters of explanation are being mailed to a list of qualified former First Command investors at last known addresses. An enclosed verification form must be signed and returned, said lawyer Wayne Secore, an independent consultant hired to distribute a total of $4 million to eligible former investors.

The payments are part of a $12 million settlement First Command reached with the Securities and Exchange Commission and NASD, the private-sector regulator of the securities industry, after the agency found that the company had misled investors. The remaining $8 million is to be used for investor education programs for military people and families, the population to which First Command has sold systematic plans for years.

Only a fraction of former First Command investors are eligible for restitution. They must meet all of the following criteria:

• Purchased a Systematic Investment Plan on or after Jan. 1, 1999;

• Terminated the plan, in writing, on or before Dec. 15, 2004, the date the SEC settlement and;

• Paid an effective sales charge greater than 5 percent, which presumably the SEC views as reasonable for some higher-priced load funds.

The year 1999 is significant because the SEC found that "at least" from then forward, First Command used a "structured sales process" that included "misleading statements and omissions" to persuade military people to invest.

These plans, which the company stopped selling last December, allowed investors to buy mutual fund shares by making fixed monthly contributions, from $100 to $500, over at least 15 years.

The plans impose a unique sales charge, or load, set at 50 percent of the first 12 payments. If the investor makes the required 180 payments, the effective charge falls to 3.3 percent. But the SEC said most systematic investors pay substantially higher sales rates than are customary, even for load mutual funds. That's because, based on First Command's own data, only 43 percent of investors make the required 180 payments.

The SEC censured First Command for misleading investors on how effective front-end sales loads are. The SEC said First Command also failed to advise prospective investors that the government's Thrift Savings Plan has many features of a systemic plan at far lower cost.

The company did not admit to or deny the SEC allegations or findings. But it accepted an SEC order to cease violating the securities law.

Former investors who believe they qualify for restitution but have not received a letter can e-mail Secore at secore@secorewaller.com or write to Wayne M. Secore, P.C. Secore & Waller LLP, Three Forest Plaza, 12221 Merit Drive, Suite 1100, Dallas, TX 75251.

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