15 Firms Fined $34 Million for Accepting Directed Brokerage Payments From Mutual Fund Companies
The NASD has fined 15 brokerage firms in an effort to eliminate the conflicts of interest that exist when the brokerage firms receive payments from mutual fund companies in return for the brokerage firms' giving "shelf space" or "preferred provider" status to the mutual funds offered.
The 15 firms and their fines are as follows (firms noted with asterisks are wholly owned subsidiaries of AIG Advisor Group, Inc.):
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Royal Alliance Associates, Inc.*
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$6,600,000
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New York, NY
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H.D. Vest Investment Services
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$4,015,000
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Irving, TX
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AllianceBernstein InvestmentResearch and Management, Inc.
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$3,984,087
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New York, NY
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Linsco/Private Ledger Corp.
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$3,602,398
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Boston, MA
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Wells Fargo Investments, LLC
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$2,970,000
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San Francisco, CA
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SunAmerica Securities, Inc.*
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$2,500,000
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Phoenix, AZ
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FSC Securities Corp.*
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$2,400,000
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Atlanta, GA
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Securities America, Inc.
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$2,400,000
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Omaha, NE
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RBC Dain Rauscher, Inc.
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$1,700,000
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Minneapolis, MN
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McDonald Investments Inc.
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$1,500,000
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Cleveland, OH
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AXA Advisors, LLC
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$900,000
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New York, NY
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Sentra Securities Corporation* and Spelman & Co., Inc.* (joint fine)
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$780,000
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Phoenix, AZ
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Advantage Capital Corp.*
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$450,000
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Atlanta, GA
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Advest, Inc.
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$286,415
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Hartford, CT
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The fines imposed on eight of the firms - Royal Alliance Associates, SunAmerica Securities, FSC Securities Corp., Advantage Capital Corp., Sentra Securities Corp., Spelman & Co., RBC Dain Rauscher, and McDonald Investments - included charges relating to their failure to retain emails as required by the federal securities laws and NASD rules.
The fine imposed on H.D. Vest Investment Services included charges related to violations of NASD rules relating to non-cash compensation. H.D. Vest reimbursed brokers' expenses incurred in connection with certain firm training and educational conferences based, in part, on the brokers' sales of funds that participated in its preferred partner program - instead of giving equal weight to the sales of all mutual funds, as required by NASD rules.
H.D. Vest Investment Services, RBC Dain Rauscher, and McDonald Investments were also charged with violations of NASD's supervisory systems and procedures rule.
In settling these matters, the firms involved neither admitted nor denied the charges, but consented to the entry of NASD's findings.
NASD has brought five previous actions for similar violations, including a complaint that is still pending against American Fund Distributors and settlements with Quick & Reilly, Inc., Piper Jaffray & Co., Edward D. Jones & Co. L.P. and Morgan Stanley DW Inc.
Source: NASD Press Release, June 8, 2005
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