The NASD has fined eight broker/dealers, including one mutual fund distributor, Lord Abbett Distributor, $7.75 million for giving favorable treatment to mutual funds in exchange for earning trading commissions on directed-brokerage business. The sanctions are the latest in what NASD says is an ongoing enforcement sweep to detect violations of its anti-reciprocal rule. In June, NASD fined 15 brokerages, including six subsidiaries of AIG, $34 million for these violations.
"We continue to pursue conduct which puts the interests of firms ahead of the interests of customers," said Barry Goldsmith, NASD executive vice president and head of enforcement. "NASD's prohibition on the receipt of directed brokerage is designed to eliminate these conflicts of interest in the sale of mutual funds, whose costs are paid not by the mutual fund company but by the funds' shareholders."
NASD found that the brokers operated "preferred partner" programs that gave the funds higher visibility on their Web sites and increased access to their sales forces, including participation in meetings of top producers.
Four of the companies are subsidiaries of National Planning Holdings, which collectively paid $3,486,500. They are Invest Financial, which paid $1,520,000; National Planning Corp., which paid $1,308,000; SII Investments, which paid $658,500; and Investment Centers of America, which paid $363,500. Other companies charged were Commonwealth Financial Network, which paid a fine of $1,400,000; Mutual Service Corp., which paid $1,300,000; and Lord Abbett Distributor, which paid the lowest fee, $255,000.
In addition, the NASD found that for four months in 2002, National Planning Corp. gave its registered representatives double credit for selling funds in its preferred partner program. The regulator also charged Commmonwealth Financial for failing to retain e-mails.