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."

You may like these other stories...

Read more from Larry Perry here and in the Today's World of Audits archive.In my last article, I summarized major differences between principles in U.S. GAAP and the Financial Reporting Framework for Small and Medium-...
OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30
Many Excel users have a love-hate relationship with workbook links. For the uninitiated, workbook links allow you to connect one Microsoft Excel spreadsheet to other spreadsheets, Word documents, databases, and even web pages.