California regulators on Monday filed a securities fraud lawsuit against brokerage house
"Edward Jones broke the law
The documents we have obtained show Jones blatantly disregarded investors' interests as it collected some $300 million in secret payments from mutual funds," said
The St. Louis, Missouri-based firm racked up $300 million in shelf space payments from January 2000 through the present from seven mutual fund firms known internally as "preferred funds", according to the complaint. The list of fund companies includes
Evidence obtained by Lockyers office illustrates that Jones maintained policies and procedures, including contests for vacation trips, to ensure that its representatives sold only the preferred funds despite knowing that many of the funds underperformed. One email from a Jones employee, in response to a newspaper article regarding revenue sharing, read, "How can we in good faith encourage clients to own funds that over five and even 10 years have not done well relative to peers? I feel like weve been caught red-handed."
Another email noted that the preferred mutual funds kept spreadsheets to show investor reps their recent bonus check and calculated how much bigger it would be if they sold their mutual funds instead. "Without question, this information has tainted my objectivity and has the potential to change the pattern of my investment recommendations," one rep indicated in a correspondence dated Dec. 17, 2003.
The suit seeks disgorgement of all profits Jones gained as a result of violating anti-fraud provisions of the state Corporate Securities Law (CSL). It also seeks restitution and damages on behalf of investors who purchased fund shares from Jones. In addition, the complaint calls for civil penalties for each violation of the CSL code. The maximum fine for each violation is $25,000, according to Lockyers office. Lockyer is also pushing for injunctive relief requiring Jones to disclose at the point of sale the payments it receives from mutual funds.
Meanwhile, Jones reportedly has reached a tentative $75 million settlement with the
The case against Jones is similar to a case involving