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First Command lawsuit ruled a class action

A California judge has allowed a lawsuit against First Command Financial Planning to go forward as a class action, a move that could affect an estimated 100,000 people, mostly former and current service members.

The plaintiffs representing the class are two soldiers and their spouses, and two sailors. They allege that First Command used misleading sales practices, and seek a refund of the 50 percent sales load that each paid during the first year they owned a systematic investment plan through First Command.

Those who qualify as a part of the class will receive a class-action notice. They do not have to take action to be part of the lawsuit, according to Blumenthal & Nordrehaug, one of the law firms representing the plaintiffs.

According to the Sept. 19 order by U.S. District Court Judge Irma Gonzalez, chief judge of the Southern District of California, First Command must provide a complete list of class members to the plaintiffs within 30 days of the order, so that a personal notice can be sent to each investor.

Those eligible to take part in the suit must meet three criteria:

• They must have made a systematic investment plan payment and paid a 50 percent sales charge on the money placed into the plan through First Command during the period from Jan. 31, 2000, through Dec. 31, 2004.

• They must have still owned the systematic investment plan on Dec. 15, 2004.

• They must not have terminated their plans within 45 days of purchase in order to receive a full refund of the sales charge.

Scott Spiker, chief executive officer of First Command Financial Services, said in an e-mail statement that it is not surprising that the judge certified the suit as a class action, since “certification occurs in the vast majority of class-action lawsuits.”

“We continue to believe the case is without merit, and we will continue our vigorous defense,” Spiker said.

According to court documents, First Command denies it used any devices, schemes or artifices to defraud, or engage in any acts or practices that operated as fraud, on the plaintiffs. Among other things, First Command contends that the investors are barred from recovering fees in court because the allegedly excessive sales loads were disclosed to them beforehand.

First Command also contends that the investors assumed the risk of any loss, based on advisory documents provided to them.

The lawsuit is the consolidation of two complaints filed in January 2005 against First Command Financial Planning in federal courts in California and Kentucky, alleging the company used misleading sales practices.

The plaintiffs contend that First Command entered into a settlement with the NASD (now known as the Financial Industry Regulatory Authority) that provided restitution to clients who started and ended their investment plans within a five-year period but failed to look after the interests of their current clients.

In that Dec. 15, 2004, settlement, First Command agreed to pay a $12 million fine, $4 million of which was set aside to pay restitution to those who opened and closed a systematic investment plan between Jan. 1, 1999, and Dec. 15, 2004, and who paid an effective sales charge of more than 5 percent.

Almost two weeks before the NASD settlement was finalized, First Command announced it would no longer sell systematic investment plans and would seek to expand its client base outside the military.