NASD Fines 15 Firms $34M Over Directed Brokerage
June 8, 2005
BOSTON (MarketWatch) -- Fourteen brokerage firms and one fund distributor, including six subsidiaries of embroiled insurance company American International Group Inc. (AIG), settled with the National Association of Securities Dealers Wednesday over undisclosed compensation arrangements they had with mutual-fund firms.
The firms have agreed to pay more than $34 million for receiving payments in the form of trading commissions, in exchange for promoting certain funds, the NASD said.
The AIG subsidiaries include: Royal Alliance Associates Inc., SunAmerica Securities Inc., FSC Securities Corp., Sentra Securities Corp, Spelman & Co. Inc. and Advantage Capital Corp.
Other firms involved in settlement are: H.D. Vest Investment Services, AllianceBernstein Investment Research and Management Inc. (AC), Linsco/Private Ledger Corp., Wells Fargo Investments (WFC), Securities America Inc., RBC Dain Rauscher Inc., McDonald Investments Inc., and AXA Advisors (AXA). The cases involve violations of the NASD's Anti-Reciprocal Rule forbidding brokers from favoring fund companies based on brokerage commissions received.
As is typical in settlements of this nature, the firms neither admitted nor denied the charges, but consented to the entry of the NASD's filings, the regulator said.
"When recommending mutual fund investments, firms must act on the basis of the merits of the funds and the investment objectives of the customers and not because of other benefits the brokerage firm will receive," said NASD Vice Chairman Mary L. Schapiro, in a prepared statement.
"NASD's prohibition on the receipt of directed brokerage is designed to eliminate these conflicts of interest," she added.
In recent years the NASD, the Securities and Exchange Commission and other regulators have been cracking down on undisclosed "directed brokerage" where brokers receive extra commissions from fund companies in exchange for listing the funds on preferred lists.
Aside from potential conflicts of interest, fund shareholders may not get the best prices on stock trades.