Buy, sell, yell.

• Author: Martin, Edward
• Position: NationsBank Corp subsidiary NationsSecurities Inc faces lawsuit - Includes related article on bank securities business in North Carolina - Company Profile

Is it a bank or brokerage? Some irate customers claim they've suffered from NationsSecurities' identity crisis.

Lawrence Bergelt helped his mother to their car and drove through their neighborhood of modest homes along streets studded with palmetto palms. Hermine Bergelt, 84, was frail, but her son wanted her with him when they got to their Tampa bank. "In case I die first, our finances will affect you," he told her, though he was only 61. "You need to know."

The ride was familiar. The Bergelts had banked at the same branch for 30 years, long before it became NationsBank. But savings rates were sinking, and when he told his teller a few days before, "I might as well have my money under the mattress," she handed him a business card and directed him to a man in an office off the lobby. Bergelt made an appointment for Sept. 29, 1993.

"I told the guy I didn't want anything with risk," Bergelt says. "I needed the money for my mother's care and to tide me over until Social Security. He said, 'Don't worry, I'm putting you in government bonds. The only way you could get hurt is for the government to go broke.'"

Bergelt transferred $64,996.95 from his savings into the Nations Government Securities Fund. The government didn't go broke. But 13 months later, Bergelt was afraid he would. He had lost $2,451.55. Worried and frustrated when, he says, the NationsSecurities broker he had dealt with moved out of his branch and began to ignore his calls, Bergelt demanded his mutual-fund balance be returned to a money-market fund.

Sometime soon, a federal court will sort out who's to blame. Bergelt and others contend NationsSecurities, a subsidiary of Charlotte-based NationsBank Corp., and its former business partner Dean Witter Venture Inc. deceived customers into switching savings into mutual funds that lost millions. The bank counters that customers who gambled on higher returns and lost are being prodded to sue by a Ralph Nader-like lawyer determined to turn NationsSecurities into banking's Corvair.

The blurred line between bank and brokerage was no accident, some ex-employees say. David Cray, a broker who worked in a branch outside Tampa, says names and color schemes on mutual funds were changed to look like bank certificates, bank employees earned bonuses and resort vacations by providing brokers with information on customers, and brokers pushed the bank's mutual funds when outside funds better suited investor needs.

"It was rare the word broker was even used," he says. "The alarms began going off for me when I began speaking to people who'd purchased mutual funds ... and I realized the majority of them had no idea they'd dealt with a broker. Most thought they'd dealt with a banker."

Though it denies trying to mislead anyone, NationsSecurities is still licking its wounds from making what in 1993 was acclaimed as a brilliant leap into the future of American banking: full-service stock brokerages. The bank subsidiary has paid out $30 million to settle complaints in Texas and millions more in legal costs defending itself. It can't put a dollar value on its loss of image and momentum. "We're rebuilding our good name," says Charles King, NationsSecurities president.

Buoyed by the long-running bull market, NationsSecurities is rebounding. For the six months ended in June, sales were up 60% over a year earlier, compared with 40% for bank full-service brokerages as a whole. When NationsBanc Securities became NationsSecurities in 1993, customers had slightly more than $5 billion invested. Now they have more than $11 billion. NationsBank, which reported record earnings of $1.95 billion last year, declines to break out subsidiary revenues, though the Federal Deposit Insurance Corp. says its fee income from mutual-fund and annuity sales tripled in 1995, to $62.4 million. "But frankly," King says, "we don't know what we would have done without the negative publicity."

Other banks, including Charlotte-based First Union Corp., got caught in the same trap. But NationsBank's soaring rise from a solid but staid regional bank to the nation's fifth-largest bank, along with the high and often brash profile of its chairman, Hugh McColl, made it a conspicuous target for critics. Internally it was struggling as its brief partnership with Dean Witter fell apart.

"We had complaints from about only one half of 1% of our accounts," spokesman Ellison Clary says. "The vast majority of our customers were satisfied. But NationsBank and NationsSecurities got into these ventures early, and we were the cutting edge, so we got more scrutiny than the others."

That's true. But Tony Plath, director of the Center for Banking Studies at UNC Charlotte, speaks of a larger lesson NationsSecurities holds for the industry. "What bankers sell and what brokers sell is fundamentally different," he says. "Brokers deal in risk. Bankers have always dealt in safety, security and trust. You ever had your banker call up and say, 'Hey, I've got a hot tip on a CD?'"

The message? "One of the things we've learned is, you have to be explicitly, perfectly, completely clear in the way you represent securities to bank customers," he says. In fact, in 1994, just as complaints against NationsSecurities and...