Scudder Settles With SEC On Directed Brokerage
October 9, 2006
Deutsche Asset Management has agreed to pay $19.3 million to the Securities and Exchange Commission on charges of directed brokerage and revenue sharing by its Scudder Funds division.
The fine includes disgorgement of $14.2 million and $2.1 million in interest, which will be distributed to Scudder's funds, plus a $3 million civil penalty.
The company reached the settlement with the Commission without admitting or denying wrongdoing.
The SEC found that between January 2001 and October 2003, Scudder entered into revenue-sharing agreements in which the company promised cash to broker/dealers in exchange for its funds being placed on the companies' preferred or recommended fund lists.
Then, the SEC said, to offset the cost of these revenue-sharing agreements, Scudder entered into directed-brokerage agreements with 18 of the broker/dealers in which the company sent them trades-paying them more than $17 million in brokerage commissions, which came out of the funds' assets rather than from operating expenses-in exchange for them either reducing or completely eliminating the revenue-sharing costs.
Scudder failed to tell its board that it was using fund brokerage commissions to satisfy its revenue-sharing agreements, the SEC said.
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