The NASD has fined four broker/dealers affiliated with ING America Insurance Holdings more than $7 million for accepting directed-brokerage payments from 10 mutual fund companies, in violation of its anti-reciprocal rule. The rule is also designed to ensure that execution of portfolio transactions is guided by the principle of "best execution" and not by other considerations.
The companies accepted $25.7 million in brokerage commissions in exchange for giving preferential treatment to the fund companies, NASD said. These benefits included yearly sales goals, special placement on the ING firms' intranet websites, direct links to the websites of the participating fund companies, increased exposure to the registered representatives of the ING firms, participation in annual national meetings.
The four affiliates are Financial Network Investment Corp., which has been fined $3.4 million, ING Financial Partners, hit with $1.3 million, Prime Vest Financial Services, which was fined more than $1 million, and Multi-Financial Securities, which is paying more than $1.2 million.
The companies neither admitted nor denied the allegations.
"The use of directed brokerage commissions from a mutual fund as an incentive towards the marketing or preferred treatment of those funds is an impermissible use of customer assets," said James S. Shorris, NASD executive vice president and head of enforcement. "NASD will continue to pursue mutual fund sales practices that put the interests of firms ahead of the interests of customers."
To date, NASD has brought more than 30 enforcement actions for similar violations.