Scudder Settles Directed Brokerage Charges

Deutsche Asset Management has agreed to pay $19.3 million to the Securities and Exchange Commission on charges of directed brokerage and revenue sharing by its Scudder Funds division. The fine includes disgorgement of $14.2 million and interest in the amount of $1.1 million, which will be distributed to Scudder’s funds, and a $3 million civil penalty. The SEC found that between January 2001 and October 2003, Scudder entered into revenue-sharing agreements in which the company promised cash to broker/dealers in exchange for its funds being placed on the companies’ preferred or recommended fund lists. The agreements also afforded Scudder increased access to registered reps, participation in conferences and favorable placement on the broker/dealers’ websites. Then, the SEC said, to offset the cost of these revenue-sharing agreements, Scudder entered into directed-brokerage agreements with 18 of the broker/dealers in which the company sent them trades—paying them more than $17 million in brokerage commissions—in exchange for them either reducing or completely eliminating the revenue-sharing costs. Scudder failed to tell its board that it was using fund brokerage commissions to satisfy its revenue-sharing agreements, the SEC said. This is the latest settlement for Deutsche Asset Management and Scudder. In January, Scudder agreed to pay $134 million to the SEC over market-timing allegations.