American Express Financial Advisors (AEFA) has reached a settlement with the New Hampshire Bureau of Securities Regulation regarding undisclosed conflicts of interest in mutual fund sales between January 1999 and March 2003. The company has agreed to pay total fines, penalties, reimbursement and restitution of $7.4 million, which includes $5 million in state fines and penalties, up to $2 million in restitution to
Jeff Spill, deputy director in charge of enforcement. "What we found instead was a pervasive effort within the company to sell cookie cutter plans heavily laden with American Express mutual funds, without disclosing to clients how this behavior financially benefited the company and its agents."
The state discovered the situation through the course of branch audits, during which Jonas Cutler, staff attorney and lead counsel for the investigation, noticed that accounts were consistently loaded with AEFA funds. Cutler also discovered e-mails that pressured agents to sell AEFA funds, even though these funds often underperformed other available products.
AEFA has also agreed to retain an independent consultant to review its practices regarding the sale of proprietary mutual funds and the use of model portfolios. The consultant will also look at the company's training related to the issue and help determine the amount of restitution that will go to state investors.