Why you should fire Principal Financial
Public Trust is generally used in the context of government relations, but the term also applies to the public’s view of Corporate America. This Special Report, entitled “The Dynamics of Public Trust in Business—Emerging Opportunities for Leaders,” was first published in 2009, but the remedies to restore public trust still applies today. Unfortunately, corporate corruption is growing, not shrinking, and as Fiduciaries, the retirement industry needs to take notice of companies like Principal Financial.
A few weeks ago, my doctor advised me that if I didn’t lose 10 lbs, I would soon become a diabetic. The markers were obvious. My AIC was elevated and my fasting glucose was approaching 130. So I lost the weight. Recently, that same doctor reviewed the markers and was happy to report they were back in the normal range. If I keep the weight off, I may be able to escape the dreaded diabetes. The same is true of investments. If the markers are there that indicate you may lose your savings if you don’t change your investment protocol, a smart investor will make those necessary changes, even if it means breaking a financial advisor’s heart in the process.
During seven years of investigative research, I have identified the methodology used by Principal to defraud their investors. The obvious, and most public, has been to charge grossly excessive fees for their services. This fact has been the subject of many lawsuits, and Principal has well established themselves as industry leaders in overcharging their customers excessive fees. But excessive fees are the tip of the iceberg when discussing Principal’s lack of corporate governance and ethics. Principal has historically paid the highest commissions to entice brokers and dealers to entrap new customers. A close friend, also a financial broker, recently told me that, as a young advisor 20 years ago, Principal offered him three times higher commissions than their competition. When he asked his accountant for advice, the accountant’s reply was, “don’t do it… if any company wants to pay you three times more than the industry average, they are stealing from investor’s, and you don’t want any part of that.”
This fact alone should be a warning that Principal may not offer the right investment choices you need to succeed in your retirement savings plan. In case you are a forgiving person, not unlike myself, then read on. I will show you how, with Principal’s financial skills and their propensity for empathy and ethics, you can turn a $22.7 million investment into a $22 million loss!! Simply read on.
Principal Financial buys Lindenhurst Village Green…
Lindenhurst Village Green was destined to become a thriving commercial development for Oliver-McMillan, a private real estate development firm based in San Diego, California. Oliver-McMillan acquired the 64 acre land parcel, located in Lindenhurst, Illinois, in April, 2007, with the intentions of building up to 600,000 square feet of retail space. But when the economy collapsed in 2008, so did the San Diego-based developer’s hopes of completing the project, which would have been part of a 190-acre mixed-use development with as many as 1,000 housing units.
In a Crain’s Chicago Business news report dated October 22, 2009, A spokeswoman for Oliver-McMillan stated the company has not hired a broker and that an asking price has not been set. Theoretically, the sale price would have to at least cover what OliverMcMillan owes on the loan. According to property records, the deal was financed with a $19.7 million loan from Bank of America.
Meanwhile, Principal Life Insurance Company was already reporting to their 401(k) clients that Lindenhurst Village Green had been purchased on October 16, 2009, a week before the above story broke in Crain’s. The purchase price was $22.7 million, and the property was not the reported 64 acres, but rather 55 acres.Principal continued to report that Lindenhurst was an investment in their “forward commitment” program, and was a land parcel acquired by the Principal U.S. Property Separate Account “at it’s loan maturity date.”
Unfortunately for 401(k) account investors, Lindenhurst lost over $15 million in fair value between October 16th and December 31st of the same year! In fact, by years end 2013, the fair value had plummeted to $800,000, as illustrated in the following fair value chart, a summation of several annual reports:
This is one illustration of how Principal was able to defraud investors during the time the PUSPSA was frozen and no withdrawals could be taken out of the account. A second “forward commitment” deal was on October 19, 2009, three days later, when Principal purchased another land parcel located at 384 Santa Trinita Avenue in Sunnyvale, California:The recorded Deed reported $11,888,000 was paid for the property, purchased from“Tmg-Santa Trinita LLC,” a shell company of unknown origin. Once again, within weeks of it’s purchase, a land parcel lost millions in value. This time it was Santa Trinita, with a reported fair value of $5.7 million on December 31, 2009…
The so-called “forward commitment” program was a resource in name only, used by Principal executives to purchase troubled assets in which Principal had guaranteed loans on behalf of co-developers like Oliver-McMillan. Principal attracted business from developers by agreeing to guarantee bank loans with 401(k) plan assets. This activity is clearly illegal, but Principal had insiders in the Department of Justice that could provide assurances that they would not be prosecuted for their fraudulent activity. Billions of dollars of investor’s monies was stolen by Principal prior to and during the 2008 financial meltdown, and there is no reason to believe that the same activity does not continue today.
Principal Financial buys hazardous waste sites with 401(k) plan dollars…
During the Withdrawal Limitation, Principal also purchased for the Principal U.S. Property Separate Account (PUSPSA), several hazmat sites, either the result of storage tank leakage or illegal dumping. Henderson, Nevada was the location of a 16 acre purchase in 2008 of Henderson Lofts, through a foreclosure proceeding when the developer defaulted a $13.2 million loan as borrower. Somehow, Principal was able to name the PUSPSA as a loan purchaser, despite the fact that the separate account lacks the legal status to make contracts. As of 2013, the so called Henderson Lofts investment was valued at $2,650,000. This represents a loss of more than $10 million for the 401(k) plan participants, as this chart taken from several annual reports, illustrate. Two other known hazmat sites were engaged as collateral for commercial construction loans during this time period.
Melrose Park near Chicago had leaking storage tanks, and following remediation, the owner at that time sold the land to Principal for the PUSPSA. The same year the property was purchased, the land fair value plummeted almost 50%. The problem for investors when existing past or present hazmat sites are purchased, is that they are considered “cradle to grave” investments. All owners, either past, present, or future, can become liable for damages typically resulting from groundwater issues. As a named fiduciary, you are especially vulnerable, unless annual reports are filed with the county and state regulators on an annual basis. Only then are you exempt from prosecution for a future leakage.
Finally, Everett Riverfront, a decades old hazmat dumpsite in the riverfront area in Everett, Washington, included a likely loan guarantee or loan purchase agreement by the PUSPSA. While this location is mentioned in the 2013 forward commitment program as a “disposition,” the account never actually purchased the land. Whether the separate account paid the loan without ownership, and/or the remediation, then Principal sold it as a venture capital partner to an interested third party, is unknown.
This post has provided you, the reader, with several valid reasons to fire Principal Financial Services. These indicators are markers that clearly indicate you will get hurt financially if you continue in the same path. Whether you are a broker, dealer, financial advisor, or plan sponsor, you are now considered a fiduciary under the Department of Labor rules. If a client or employee is reading this blog post right now, and has been losing money in a Principal investment, there are dozens of law firms also reading this information that will be happy to represent that person as a client as well.
Ignoring this problem will not make it go away, anymore than ignoring my weight will prevent diabetes. Now is the time to take action. If you feel I am somehow not stating the facts, give Principal a call today and inform President and CEO Dan Houston of my website and blog posts. If he denies the facts as they exist, you will then be in a position to make a final determination without guilt.