Adviser Sued in Best Execution Case
September 20, 1999
The SEC, which increasingly is examining the securities trading practices of money managers, has sued an investment adviser for allegedly failing to get the best execution of trades for its clients.
Shawmut Investment Advisers of Boston allegedly paid higher-than-necessary fees to a Michigan broker-dealer for referring money management clients to Shawmut, according to an SEC lawsuit filed Sept. 9. Traders for Shawmut, which was acquired in 1995 by Fleet Investment Advisors of Boston, sent trades to an unidentified broker/dealer who was charging comparatively high rates to buy and sell fixed-income securities for Shawmut clients, according to the SEC. That broker/dealer then paid 80 percent of the fees it earned on the Shawmut transactions to East West Institutional Services of Harper Woods, Mich., a broker/dealer that had agreed to refer clients to Shawmut, the SEC alleged. The failure to obtain best execution of trades cost Shawmut customers approximately $63,000, according to the SEC.
The SEC also alleged that Shawmut fraudulently used brokerage commissions and fees, including commissions from mutual funds, from 1993 to 1996 to compensate East West and other broker/dealers for directing institutional clients to Shawmut. Fleet has agreed to repay investors approximately $1.9 million to settle the allegations.
Fleet neither admitted nor denied the allegations in settling the case. East West denied the allegations. Karen Michalski of Quincy, Mass. and Christopher D. Sargent of Boston - the two Shawmut traders allegedly involved in failing to obtain best execution of Shawmut customers' trades - agreed to settle the SEC's case without admitting or denying the allegations. Michalski and Sargent agreed to pay a fine of $5,000 and be barred from working for any investment adviser for 15 months. Six individuals allegedly involved in the case deny the SEC's allegations and are planning to fight the claims at trial, according to the SEC.