A top-level securities regulator on Friday warned brokerages against trimming refunds due to investors who were promised breakpoint discounts on bulk purchases of mutual fund shares.

Lawrence West, associate enforcement director at the Securities and Exchange Commission, said some brokerage firms have been trying to welch on their settlement agreements with regulators by misapplying new lower fee schedules to past instances when discounts were not awarded.

"If that is the case, then the broker must apply the more favorable old rules," West said. Essentially, he sent the message that the Commission will not tolerate anyone who takes a shortcut in reimbursing investors.

In February, regulators announced that 15 firms, including Bear Stearns and Lehman Brothers, agreed to pay more than $21.5 million in penalties to settle allegations that they overcharged some of their customers by failing to deliver breakpoint discounts. The firms also agreed to repay investors for the overcharges, which the NASD estimated to be more than $86 million in 2001 and 2002.

The SEC has proposed a new rule that would force mutual funds to spell out more clearly how investors can qualify for breakpoint discounts. A final vote on the issue is expected later this year.

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