Securities Law Prof Blog

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

Thursday, June 28, 2007

NASD Settles Mutual Fund Sales Violations Against Four Firms

The regulators continue to bring enforcements actions against broker-dealers who do not recommend the suitable class of mutual fund shares or improperly price the fund shares.  For the latest example:

NASD announced today that it has settled cases against four firms involving mutual fund sales violations.  NASD imposed a $473,000 fine against MML Investors Services, Inc., of Springfield, MA, and a $354,000 fine against NYLIFE Securities LLC, of New York, NY for improper Class B share sales. Securities America, Inc., of Omaha, NE was fined $322,000 for improper Class B and Class C share sales.  NASD also fined Northwestern Mutual Investment Services, LLC, of Milwaukee, WI, $100,000 for failure to have adequate supervisory systems and procedures to ensure that clients received Net Asset Value (NAV) pricing when appropriate under NAV transfer programs. MML's settlement included similar findings without a fine.

In resolving the Class B and Class C share cases, MML, NYLIFE and Securities America have agreed to remediation plans that cover over 10,200 transactions and at least 1,080 households.

In resolving the NAV cases, MML and Northwestern will provide additional remediation to customers who qualified for, but did not receive the benefit of, available NAV transfer programs. Total NAV remediation for MML, including remediation already paid to customers, is estimated at approximately $2.56 million. For Northwestern, total remediation is estimated at $2 million, in addition to the previous conversion of approximately $2.0 million in Class B shares to Class A shares. "The cases announced today are the result of NASD's continuing commitment to help ensure that sales of mutual funds - the investment product most commonly held by investors - are made appropriately and with the benefit of full consideration of all available share classes and pricing features," said James S. Shorris, NASD Executive Vice President and Head of Enforcement. "These firms failed to implement reasonable supervisory procedures to ensure that these considerations were addressed on a consistent basis."

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