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Mutual Fund Firms Fined $21 Million

March 24, 2005
Some mutual fund companies and brokers are still coming under fire from regulators for not putting consumers' interests first. That segment of the financial industry has been operating under a cloud of suspicion since 2003, when New York Attorney General Elliott Spitzer first charged some blue chip firms with market timing, at the expense of small investors.

Mutual Fund Market Timing • Prudential to Pay $600 Million for Market Timing • Waddell & Reed Settles Market Timing Case • Court Overturns Key Mutual Fund Investor Protection • SEC Missed Mutual Fund Abuses, GAO Finds • Mutual Fund Firms Fined $21 Million • Merrill Lynch to Pay $10 Million • Kaplan Brokers Plead Guilty to Late Trading • PBHG Agrees to Refund $120 Million • Fremont Investment Advisors Settles • INVESCO Settles Market Timing Charges with Colorado • Spitzer Spoils Bank of America's Party

Now the National Association of Securities Dealers has levied over $21 million in fines against three more firms - American Express Financial Advisors, Chase Investment Services and Citigroup Global Markets/Smith Barney - for pushing mutual fund shares that carry higher fees.

NASD charges brokers sold the more fee-laden Class B shares to investors without telling them that Class A shares would cost them less, and would even carry a discount.

Two other firms, Citigroup and Putnam, are paying large fines for not disclosing the revenue sharing payments they receive from some mutual fund companies for selling their products. The companies agreed to the fines without admitting guilt. To date, the mutual fund industry has paid out $2.5 billion in fines and settlements.

But this week's regulatory action shows the heat is still on the mutual fund industry, with regulators zeroing in on sales practices.

Some of the top names on Wall Street have been accused of shady practices or have settle charges of improper behavior. The industry's sometimes seedy behavior has coincided with a stagnant market, when investment returns have been disappointing, making mutual funds an even harder sell.

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