Brokerage industry regulator NASD has fined Merrill Lynch, its clearing house unit Pierce, Fenner & Smith, Wells Fargo and Linsco/Private Ledger a total of $19.4 million for improper sales of Class B and Class C mutual fund shares.
New York-based investment banker Merrill Lynch was fined $14 million; Wells Fargo, a San Francisco-based money manager, was fined $3 million; and Linsco, a Boston brokerage house, was fined $2.4 million. In addition to the fines, each firm will compensate affected customers, which altogether equal about 29,000 households.
The three firms recommended that customers purchase Class B and/or Class C shares at a time when investing in Class A share would have been a greater advantage, NASD officials said in its ruling.
"In recommending mutual funds with a different share classes, brokers must understand, consider, and disclose information about which particular share class would be most beneficial for the customer from an expense perspective," said Barry Goldsmith, executive vice president and head of enforcement at the Washington regulator. "The failure by these firms to do this resulted in their customers purchasing Class B and C shares when they would have been better served with Class A shares. The firms have agreed to a remediation plan that will give affected customers the opportunity to convert their holdings to a more financially advantageous mutual fund share class."
In other regulatory news, the Securities and Exchange Commission has ended its investigations into Bank of Hawaii for allegations having to do with improper mutual fund trades, and has decided not to impose any fines, and not to recommend enforcement action of any kind, according to the Honolulu Advertiser.