Firms to Pay Over $21.5 Million in Penalties to Settle SEC, NASD Charges

The Securities and Exchange Commission (SEC) and NASD announced this week enforcement and disciplinary actions against a total of 15 firms for failure to deliver mutual fund breakpoint discounts during 2001 and 2002.

Breakpoint discounts are volume discounts applicable to front-end sales charges on Class A mutual fund shares (front-end loads). SEC and NASD each brought cases against a group of 7 firms, and NASD separately brought actions against the other 8 firms. The 15 firms have agreed to compensate customers for the overcharges, pay fines in an amount equal to their projected overcharges that total over $21.5 million, and undertake other corrective measures.

The average amount of overcharge per transaction was $243, ranging up to $10,000. Based on the self-assessment, NASD estimated that at least $86 million was owed to investors for 2001 and 2002 alone.

The firms named in this week's enforcement actions fell into two categories: those with higher than average failure rates and high dollar amounts of total overcharges; and those whose failure rates were significantly higher than average.

Stephen M. Cutler, Director of the Commission’s Division of Enforcement, remarked: “These Commission actions target seven firms whose breakpoint overcharges totaled $21 million over a two-year period. But our actions and the NASD’s are a message to every broker-dealer: you must exercise due care to provide appropriate breakpoint discounts to mutual fund investors, or enforcement action will be taken against you, and substantial penalties will be imposed.”

“Securities firms must deliver on promises made to customers; breakpoints are no exception. We estimate that for 2001 and 2002 alone, $86 million is owed to investors from the failure to award breakpoint discounts, demonstrating just how critical it is that firms identify, remediate and take steps to prevent problems in this critical segment of the markets,” said Mary Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "The fines and other remedial measures make clear that these types of failures, whatever the cause, will not be tolerated, and that the interests of customers are paramount."


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