The National Association of Securities Dealers has slapped its first fine on a brokerage firm for violating NAV transfer program procedures.
AXA Advisors, the New York-based broker/dealer and investment advisor arm of French financial services conglomerate AXA Group, has been fined $250,000 for rule violations concerning its subsidiaries PIMCO and Eaton Vance. The NASD said the firm "failed to obtain sales charge waivers for mutual fund customers through net asset value transfer programs."
NAV transfer programs allow certain clients to sell funds and not pay a sales charge when buying another fund in a different fund family if the customer invests the prior funds' proceeds as well.
As a result, many clients paid front-end sales charges when they shouldn't have, or, if dealing with Class B shares, they have been subjected to continued deferred sales charges. According to the regulatory agency, AXA failed to specifically identify NAV transfers within PIMCO and Eaton Vance funds.
The firm also got fined because it didn't have appropriate supervisory systems in place to oversee the procedures. Through the mistake, the NASD determined that from February 2000 though July 2003, AXA earned more than $700,000 in revenue on $18 million invested by clients in these two fund families offering the program.
Included in the $250,000 is a $50,000 charge to AXA and Erik Mosholt, a New York-based senior vice president of the firm's investment products group, for supervisory violations.
An AXA spokesman said that Mosholt is currently still employed by AXA.
Industry sources said perhaps NAV transfer program abuses by other firms is the next sweep regulators are taking on. "It's hard to believe that AXA was the only one," said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.
The NASD is conducting "a broad-based review" of other firms, said Barry Goldsmith, EVP for enforcement at the NASD. "It's particularly important at this time given some of the other relevant [investigations] for mutual funds and the fact that investors are shifting their money from one fund to another with increasing frequency."
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