A California appeals court upheld an earlier Superior Court ruling in favor of California Attorney General Bill Lockyer against Edward Jones for not disclosing sales deals with a number of mutual fund companies. The court rejected Edward Jones' lawsuit that federal law preempted Lockyer's case against it.
As a result, Lockyer's trail against the brokerage firm may now proceed.
Earlier in the week, however, Lockyer was dealt a setback in a similar case he has against American Funds, in this case for hiding $426 million it paid it "shelf-space" payments to brokerages that sold its funds over the past five years. Los Angeles Superior Court Judge Carl J. West tentatively ruled that the state does not have the jurisdiction to sue the firm for allegedly hiding the payments.
According to Lackyer's lawsuit against American Funds, its 20 million shareholders were not informed of the payments, which, Lockyer said, caused brokers to push funds that paid these fees, rather than those that were best suited for the investors.
Unlike other fund companies that have settled with federal and state regulators over the past two years over improper sales and trading practices, American Funds decided to fight the charges. The firm used a 1996 federal law that says a state cannot pass any governance laws that go beyond what Securities and Exchange Commission rules dictate. The company also said that the money in question was necessary for broker education. Such payments are permitted under SEC rules.