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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, February 12, 2009

FINRA Fines Wachovia For Mutual Fund and UIT Suitability Violations

FINRA announced today that it has fined two Wachovia units more than $4.5 million for violations related to the sales of mutual funds and Unit Investment Trusts (UIT). Wachovia Securities was fined $4.41 million for its failure to provide investors with sales charge discounts in eligible UIT transactions, its failure to ensure that investors received the benefit of Net Asset Value (NAV) transfer programs in applicable mutual fund purchases and for suitability violations related to the sale of Class B and C mutual fund shares. Wachovia Securities Financial Network was fined $150,500 for suitability violations related to improper Class B share sales. The fines reflect the $4 million-plus in additional commissions the firms received by selling Class B and C shares rather than Class A shares.

Wachovia has already returned over $2.4 million to Class A purchasers in connection with 4,200 NAV transfer transactions and approximately $3 million to customers in connection with over 20,000 UIT transactions. As part of the settlement, the firms will also provide remediation to 5,850 households that purchased Class B and C shares in over 14,500 transactions and to additional eligible NAV customers who did not receive the benefit of NAV transfer programs.

FINRA found that Wachovia Securities failed to provide rollover discounts in connection with over 15,000 customer purchases of UITs. The firm also failed to provide breakpoint discounts in connection with approximately 5,000 customer UIT purchases. As a result, customers paid approximately $2.71 million in excessive sales charges.  FINRA also found that Wachovia Securities made unsuitable sales of Class B and C shares and Wachovia Securities Financial Network made unsuitable sales of Class B shares. Wachovia Securities recommended the purchase of Class B and C shares, and Wachovia Securities Financial Network recommended the purchase of B shares, without considering, on a consistent basis, that an equal investment in Class A shares would have generally been more advantageous for certain customers.  FINRA also found that Wachovia Securities had inadequate supervisory procedures relating to UIT, NAV transfer program and Class B and C sales and Wachovia Securities Financial Network had inadequate supervisory procedures relating to Class B share sales.

Each firm settled these matters without admitting or denying the allegations, but consented to the entry of FINRA's findings.

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