Securities America, Inc. agreed to a $375,000 fine to settle charges by the NASD that it received improperly directed mutual fund commissions on behalf of one of its brokers, failed to supervise and failed to disclose the arrangements to the affected mutual fund owners.
The NASD said that this situation, in which a mutual fund company directed brokerage fees specifically for the benefit of a lone broker, is the first known case of its kind. NASD rules prohibit registered firms from allowing sales personnel to participate in directed brokerage arrangements. NASD fair dealing regulations also require disclosure to clients of such fees and other compensation received through arrangements involving their accounts.
A directed brokerage arrangement is one in which a client, such as a pension fund, directs a planner to use a certain broker-dealer for trade executions. In return for the commissions received on the transactions, the broker-dealer provides other services to the advisor or these can be rebated to the clients. The Securities America broker arranged for such commissions from union-sponsored retirement plan clients to be directed to his firm for his own benefit.
In its sanctioning order, the NASD said the broker negotiated an arrangement with a mutual fund company to have thousands of dollars of brokerage commissions directed to him every month and that Securities America approved the arrangement for almost two years while it received $420,000 in directed commissions from the fund company for the broker’s benefit, of which $262,000 was paid to the broker.
Shepherd Smith and Edwards represents clients that are the victims of securities fraud. If you have lost money in because of misconduct by someone in the securities industry, hiring an experienced law firm can greatly increase the chances of recovering your losses. Contact us to arrange a free consultation with one of our attorneys.