American Express Financial Advisors has filed suit in U.S. District Court in New Hampshire asserting that federal law preempts that state's securities regulators from pressing fraud charges against its brokers, The Wall Street Journal reported last week.

The New Hampshire Bureau of Securities Regulation is accusing the American Express unit of questionable sales practices. The regulator claims that American Express brokers and advisers received secret incentives to sell lackluster, in-house mutual funds. Specifically, the regulator alleges that American Express awarded top sellers of its mutual funds a number of perks, including bonuses and a 12-month lease on a Mercedes-Benz passenger car.

Such incentives, the state said in a Feb. 18 announcement, is in violation of state and federal securities laws requiring advisers to act in their clients' best interest and to disclose any potential conflicts of interest.

David Kanihan, a spokesman for American Express, told WSJ, "The issues raised in this matter are covered by federal securities laws, and, therefore, we believe that a federal court is the appropriate jurisdiction" for the complaint. American Express further argues that the disclosure issue is a matter regulated by the Securities and Exchange Commission. A spokesman for the state regulator characterized the American Express suit as unconstructive.

The state seeks $17.5 million in fines and restitution and another $200,000 in investigation costs.

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