Wednesday, July 11, 2007
In the first case of its kind, NASD announced today that it has fined Securities America, Inc. of Omaha, NE, $375,000 for improperly sharing directed brokerage commissions from a mutual fund company with Michael Bullock, a former Securities America broker in the Los Angeles, CA area. NASD also found that Securities America failed to adequately supervise Bullock's communications with his union-sponsored retirement plan clients to ensure that Bullock disclosed his additional compensation to those clients.
In a separate complaint, NASD charged Bullock with improperly receiving directed brokerage commissions and other compensation of more than $280,000. Bullock was also charged with misrepresenting and failing to disclose this compensation to his union retirement plan clients - at the same time he was advising those clients to maintain or include the fund company's mutual funds in the retirement plans they offered to working and retired union members.
The actions announced today differ from previous disciplinary actions involving directed brokerage in several important respects. Previous actions involved firms receiving directed brokerage in exchange for providing "shelf space" for specific mutual funds - that is, promoting those funds to the investing public and among their own brokers in exchange for directed brokerage from those funds. In this case, the fund company directed brokerage specifically for the benefit of an individual broker - a first. NASD rules prohibit registered firms from granting a participation in directed brokerage to sales personnel.
In settling these matters, Securities America neither admitted nor denied the charges, but consented to the entry of NASD's findings.