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Long-standing Investment Firm Subpoenaed by New York’s Attorney General

— November 13, 2017

Long-standing Investment Firm Subpoenaed by New York’s Attorney General

Long-standing Insurance and investment firm, TIAA, has been subpoenaed by New York’s attorney general, Eric T. Schneiderman, in an effort to secure documents and information related to its potentially deceptive sales practices.  TIAA handles the retirement accounts for over four million employees at 15,000 nonprofit institutions.  It oversees $1 trillion in total in client assets. The subpoena came following an article published by The New York Times last month which raised questions regarding TIAA’s procedures.

The practices in question are also the topic of a whistle-blower complaint filed with the Securities and Exchange Commission which was originally put into play by former employees of the firm who have alleged they were pressured to sell products that were more costly to clients but added little value in order to maximize the company’s profits.  The complaint also states TIAA’s advisers were told to tap into customer’s fears in order to sell its products.  In fact, the employees said there is a well-known saying at the firm: “If they cry, they buy.”

Long-standing Investment Firm Subpoenaed by New York Attorney General
Eric T. Schneiderman, Image Courtesy of New York State Attorney General

Interviews with over twenty current and former TIAA employees support the assertions of the whistle-blower complaint.  However, the firm makes its employees sign an agreement barring them from making disparaging public comments, so they have all chosen to remain anonymous.  The complaint is pending.

As an investment firm, TIAA and its employees are subject to federal laws regarding how they interact with clients and the state’s Martin Act gives Schneiderman power over financial firms on matters involving deception, fraud, or undisclosed conflicts of interest.

Chad Peterson, a TIAA spokesman, said, “We are limited in what we can say about regulatory and enforcement matters, but we cooperate fully with our regulators.”  He did comment on the ‘If they cry, they buy’ rumor, however, adding, “In more than ten years at TIAA, I have never heard such language, which is certainly not in keeping with our values or approved materials.”

TIAA executives have called the allegations made by the media “misleading” and they claim to stand behind the firm’s “trusted reputation and track record” and its “commitment to putting our clients first.”

TIAA was created almost a hundred years ago with a grant from the Carnegie Foundation to provide investment options that would generate retirement income for teachers not covered under traditional pensions. TIAA remained a nonprofit until 1997 when Congress revoked its tax exemption.  Yet, the company still insists on promoting its “nonprofit heritage,” calling itself a “mission-based organization.”

The whistle-blower complaint contends that TIAA began conducting a fraudulent scheme in 2011 to convert “unsuspecting retirement plan clients from low-fee, self-managed accounts to TIAA-CREF-managed accounts” that were more expensive.  The more complex a product, the more an employee earned selling it, according to the complaint, and those who chose to raise questions regarding management’s demands were “processed out.”

Heightened regulatory interest in asset managers is long overdue, according to Edward Siedle, a former S.E.C. lawyer and founder of Benchmark Financial Services.  He said, “While assets in managed accounts have skyrocketed in recent decades, regulatory scrutiny of fiduciary breaches has not kept pace.  It appears that regulators are finally focusing on this industry, which impacts the retirement security of millions of people.”


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