From the AEGIS e-Journal, Volume 2 Number 11, November 1999
False claims and their counterclaims As citizens, most of us believe that certain institutions should be above the perceived standard of a used car salesman’s plaid jacket, tricks and chicanery and puffery (this editor owns a used car lot, so he can say these things). In general most institutions are above this level, but sometimes they not much above this level. In recent months, in a western state, Rock Trust Company sued Paper Trust Company (the names have been changed to protect everyone), accusing them of stealing employees and accounts. Paper Trust responded “We did not steal employees and accounts: They ran from you!” A defensive investigation of Rock Trust by Paper Trust indicated that Rock Trust’s advertisements were so false that puffery as a defense was not available. As an example, Rock Trust had a web-site advertising its services. The web site contained numerous statements about Rock Trust and it’s activities that were completely inaccurate — more than could be accounted for through error and even sloppiness: • It listed the wrong date of founding. • It had the wrong address for the company, using a much more prestigious address on the web than their true physical address. • It claimed performance standards that were greater than any other trust company (Paper Trus found out that Rock’s principals routinely rounded up performance standards every month (a 3.41 performance standard would become a 3.5 performance standard) so that, the end of the year, their cumulative rounding errors would compound and overstate their performance by 20% a year. • It alleged that they were the largest trust company in their region. They were not. There were about 20 larger. • It alleged that the principals of the trust company hosted their own weekly media event on TV, They did not. It had been canceled for a year and a half. • And further, it stated: “Our reputation and integrity are our most valuable assets.” ÆGIS, November 1999 4 The Judge issued a summary ruling against Rock Trust Company in favor of Paper Trust Company, requiring Rock to so notify all of its clients, as well as having to recast their advertising and recast their earnings subject to an independent review and audit. In fact, this being the real world, Rock did not do that. Since they had a subsidiary trust company in another state they folded to their assets into the subsidiary, closed operations of the former parent company, and lived happily ever after. The lesson to be learned here is no matter what financial institution you have been dealing with, whether it be a trust company, a bank, a brokerage firm, or an insurance company, you can not necessarily believe the representations of the company without an independent third part verification. All items that can not be independently verified by a third party should be taken with a grain of salt. It is also a lesson in the fact that competitive intelligence can be used as a tool in litigation, and force unseemly disclosures and costly recalls.