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Scudder is paying $425,000, Putnam $175,000 and AllianceBernstein $100,000, although none of the firms admitted wrongdoing.
One of the parties that Scudder held was in 2002, where the firm recreated a 1970s discotheque. The firm also held fishing, golf and horseback riding events and lavished brokers and their spouses with dinners at expensive New York restaurants, the NASD said.
Putnam also paid for meals and entertainment, in addition to transportation, and AllianceBernstein paid for brokers and their guests to eat at expensive New York restaurants, attend Broadway shows and go on United Nations tours. NASD said the firm also didn’t have policies and procedures in place to comply with its non-cash compensation rules.
Scudder and Putnam engaged in the activity between 2001 and 2004, while AllianceBernstein’s expenditures were made just in 2001, NASD said.
NASD said it limits the use of compensation, including non-cash compensation, to brokers to limit point-of-sale incentives from compromising their objectivity in matching their customers’ investment needs with the appropriate product.
The “enforcement action underscores the need for distributors of mutual funds and variable annuities to understand the limits surrounding the use of non-cash compensation,” said James S. Shorris, NASD executive vice president and head of enforcement. “Non-cash compensation of the sort found in this case is prohibited because it can induce brokers to put their own interests ahead of their clients’ interests.”
