NASD Fines Four Firms for Not Waiving Sales Charges

The NASD announced Wednesday that it is fining four brokerage firms $850,000 for failing to waive front-end sales charges for customers buying Class A shares by not having adequate supervisory systems and procedures in place. In addition, the companies must repay $43.8 million to the overcharged customers.

Edward Jones, RBC Dain Rauscher and Royal Alliance Associates are each paying a fine of $250,000, but Morgan Stanley is paying only $100,000 since, the NASD said, it took remedial measures.

As far as the remediation is concerned, Edward Jones is paying $25 million, plus interest; RBC Dain Rauscher $6.8 million, plus interest; Royal Alliance $1.6 million, plus interest; and Morgan Stanley $10.4 million, plus interest. The firms must also hire a third-party examiner to oversee the remediation process.

“The failures on the part of Edward Jones, RBC Dain Rauscher, Royal Alliance and Morgan Stanley to adequately supervise the identification and implementation of NAV transfer programs deprived their customers of substantial discounts on mutual fund purchases,” said James S. Shorris, NASD executive vice president and head of enforcement. “Securities firms must learn all of the relevant pricing features of the fund shares they sell and ensure that eligible investors receive all available discounts and sales charge waivers—without exception.”

From 2002 to 2004, a number of mutual fund families offered customers who redeemed shares for which they paid a sales charge to use that money to buy Class A shares of a new mutual fund without paying a sales charge. The NASD found that the four brokerages failed to eliminate the front-end sales charge.

In settling with the NASD, the firms neither admitted nor denied the charges buy consented to the entry of NASD’s findings.