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NASD Fines Merrill $5M For Fund Sales Contests

The NASD has fined Merrill Lynch, Pierce, Fenner & Smith $5 million for supervisory failures, impermissible sales contests, unsuitable mutual fund switches and other violations between 2001 and 2004 at two of its call centers, in Hopewell, N.J., and Jacksonville, Fla. The firm has also been prohibited from staging any other sales contests for three years and is required to hire an independent consultant to oversee its compliance programs.

In conjunction, the NASD has issued an investor alert to make people aware of sales-oriented, rather than customer service-oriented, call centers.

"All investors are entitled to services from registered representatives acting in their clients' best interests who are reasonably supervised by properly registered professionals," said NASD SVP and Acting Head of Enforcement James Shorris.

Many of Merrill's customer service agents misrepresented information about mutual funds, or simply omitted facts, the NASD said, and a number of their supervisors were not properly licensed or registered. Then, in 2002, through three sales contests, Merrill encouraged these agents to sell its proprietary mutual funds by offering prizes of rock concert tickets, sporting events and dinners. Further, many of these representatives were not authorized to recommend any investment choice to customers other than mutual funds.

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