Week in Review
July 9, 2007
Brokers Settle With NASD Over Improper Fund Sales
The NASD has settled with four brokerages over improper mutual fund sales. Combined, they are paying fines of $1.2 million.
For improper sales of Class B shares, MML Investors Services is paying $473,000 and NYLIFE Securities $354,000. Securities America is paying $322,000 for improper sales of Class B and Class C shares. The NASD is fining Northwestern Mutual Investment Services $100,000 for not having adequate supervisory systems and procedures to ensure that client received net asset value (NAV) pricing under NAV transfer programs.
The regulator said MML also failed to have similar supervisory systems, but did not impose a fine on the company since it took remedial actions to correct this prior to the NASD's detection. The regulator said it reduced Northwestern's fine since it immediately took steps to improve its NAV transfer systems after an NASD examination.
In addition to these fines, MML and Northwestern must pay remediation to customers who qualified for but did not receive the benefit of available NAV transfer programs. For MML, that is $2.56 million, and for Northwestern, that is $2 million.
"The cases announced today are the result of NASD's continuing commitment to help ensure that sales of mutual funds are made appropriately and with the benefit of full consideration of all available share classes and pricing features," said James S. Shorris, NASD executive vice president and head of enforcement. "These firms failed to implement reasonable supervisory procedures to ensure that these considerations were addressed on a consistent basis."
Shorris added that the NASD hopes that its decision not to fine MML for supervisory system violations and to reduce Northwestern's fine so considerably "will encourage other firms to increase their efforts to proactively identify compliance problems."
SEC to Distribute $37M to Columbia Funds Investors
The Securities and Exchange Commission will distribute $37 million in fair funds to 300,000 Columbia Funds investors whose holdings were affected by market timing between 1998 and 2003. It is the first of five fair funds distributions totaling $140 million that the SEC is making to Columbia Funds investors.
"The Commission has now returned more than $1.8 billion to injured investors through fair fund distributions in multiple cases," said Linda Chatman Thomsen, director of the division of enforcement. "This first distribution from the Columbia fair fund marks another significant step in our continuing efforts to distribute fair funds to mutual fund investors."
The SEC brought its case against Columbia Management Advisors and Columbia Funds Distributor in 2005, for which the companies paid $70 million in disgorgement and $70 million in penalties.
Galvin Questions UBS Over Hedge Fund Perks
Massachusetts Secretary of the Commonwealth William F. Galvin has accused UBS of "dishonest and unethical business activities" by giving hedge fund managers perks in order to get their lucrative trading business, according to The Boston Globe.
UBS Securities gave investment managers office space at discounted rents, a personal line of credit, tickets to sporting events and other perks, Galvin charged in an administrative complaint.
The complaint states that UBS created potential conflicts of interest and violated a number of securities regulations. UBS declined to comment, and a spokesperson stated it is reviewing Galvin's filing.
Galvin said that UBS provided office space to hedge funds at its expensive office locations at discounts as high as $40,000 a year. Managers who failed to produce for UBS ran the risk of being kicked out, according to the suit.
"Either we kick them out now or give them six to nine months and tell [them] we need to try to get more revenues," wrote Michael Torrisi, executive director of UBS prime brokerage services, in an internal e-mail about a hedge fund tenant, according to the lawsuit.
The suit does not detail how much trading business the hedge funds directed to UBS in exchange for the perks.
Entertainment benefits also occurred. The suit said that Torrisi charged thousands of dollars to meals and sport tickets to his corporate credit card for hedge fund tenants. Galvin alleged that Torrisi charged more than $1,300 worth of food at Fenway Park to his corporate card during a Boston Red Sox versus New York Yankees game. Among the guests were employees of three hedge fund tenants who were listed on his expense report, the suit notes.
Edward Jones Overlooked Investors in Settlements
Although in April, Edward Jones proposed settling investor lawsuits over hidden revenue-sharing agreements for $127.5 million, the firm is now trying to postpone approval of that settlement from July 20 to Oct. 1, the St. Louis Daily Record reports.
The reason, Edward Jones said, is that due to "computer programming errors," it overlooked 300,000 investors, and that instead of sending out the payments to 5.7 million investors, six million need to be accounted for.
Edward Jones had proposed paying investors $127.5 million in vouchers to settle class-action lawsuits that it accepted revenue from mutual fund companies in exchange for recommending their funds.