The NASD has fined the former Quick & Reilly, now a member of the Banc of America Investment Services family, $570,000 for directed-brokerage violations. In addition, NASD imposed a $275,000 fine on Piper Jaffray for similar abuses. The Piper Jaffray fine was adjusted to reflect the firm's voluntary disclosure of its wrongdoing, which was uncovered during a self-evaluation.
According to NASD officials, both firms operated preferred-partner or shelf-space programs that gave as many as 15 fund complexes at Piper and 20 at Quick & Reilly higher visibility on the brokerages' Web sites. The special treatment also included increased access to their sales forces, participation in "top producer" and training meetings, and broader promotion than for other funds.
The conduct violates the NASD's "anti-reciprocal rule," which prohibits favoring one fund over another on the basis of brokerage commissions. "The purpose of the rule is to help eliminate conflicts of interest in the sale of mutual funds," said Mary L. Shapiro, vice chairman of NASD. "These sorts of arrangements encourage the inappropriate use of mutual fund commission dollars and have the potential to improperly influence a firm's judgment when making recommendations to its clients." Neither firm admitted or denied the charges.
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