In Focus

January 9, 2006

was a good year, not just for White Sox fans but also for investors. Consider, for example, the NASD's regulatory achievements. NASD issued numerous Investor Alerts, rolled out its "Mutual Fund Expense Analyzer" on its website, and administered 6,000 new investor claims filed in arbitration to recover investment losses.

Moreover, NASD did a great deal for mutual fund investors. NASD fined six major brokerage firms - Citigroup, American Express / Ameriprise, Chase Investment Services, Merrill Lynch, Wells Fargo and Linsco/Private Ledger - a total of $40 million and ordered remediation for selling unsuitable B share and C share funds. NASD also fined 26 firms $55 million in the area of directed brokerage and impermissible revenue sharing with mutual fund companies.

Regarding variable annuities, the NASD filed 88 cases in 2005. NASD settled a major one against Waddell & Reed. That firm paid a $5 million fine and $11 million in restitution to injured customers for "engaging in a campaign to exchange the variable annuity contracts of thousands of customers without regard to the suitability of those switches."

Fee-based accounts, particularly the appropriateness of fee-based accounts in lieu of paying commissions, were the subject of two cases that NASD brought in 2005. In one, Morgan Stanley DW was fined $1.5 million and ordered to pay $4.6 million in restitution to 3,500 customers. The firm should not have recommended that these customers pay fees in lieu of commissions. Fee-based accounts normally are not suitable for "buy and hold" investors not wishing to engage in at least a moderate amount of trading securities.

Finally, the NASD assisted investors with 529 College Savings Plans. NASD fined American Express / Ameriprise and ordered it to pay restitution for failing to adequately supervise the firm's sale of 529 plans to properly account for available state tax benefits for in-state plans.

We should be thankful for these and other NASD regulatory initiatives. Let's hope such efforts continue in 2006!

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James J. Eccleston is a securities attorney, representing customers as well as brokers and brokerage firms nationwide in arbitration, litigation and regulatory matters. He maintains an informative website at www.FinancialCounsel.com. He is an equity partner with Shaheen, Novoselsky, Staat, Filipowski & Eccleston, and can be reached at 312-621-4400.