Wachovia Securities Settles NASD Supervision Charges and Agrees to $2 Million Fine

Wachovia Securities LLC of Richmond, Virginia says that it will pay $2 million in restitution to settle charges that it did not properly supervise its fee-based brokerage business from 2001 to 2004. It also says that it will pay some 1,300 customers who were either allowed to continue the inappropriate fee-based accounts or were asked to pay account fees on Class A mutual fund shareholdings that had already been paid for.

In a settlement reached with NASD, Wachovia says it will work with an outside consultant to evaluate the way that it identifies and pays customers their restitution. 549 customers collectively paid Wachovia fees of about $1.9 million, although they did not conduct any trades for at least two years.

NASD says that firms are obligated to look at whether fee-based accounts are appropriate. Customers with fee-based accounts are generally asked to pay a yearly fee (either a set rate or a percentage fee) instead of a commission every time a transaction takes place.

NASD says that Wachovia did tell its brokers that a Pilot Plus account was not suitable for buy-and-hold customers, customers who made a limited number of trades, and customers with assets worth less than $50,000. NASD also says, however, that Wachovia did not create a system or procedures for figuring out whether Pilot Plus accounts were appropriate for these customers.

NASD claims that 620 Pilot Plus clients with assets lower than $25,000 paid the minimum yearly fee-already two times the 2% rate allowed. Other clients were asked to pay an initial sales fee and an ongoing asset-based fee on purchases of Class A mutual fund shares. Both groups are entitled restitution under the settlement terms.

NASD also alleged that Wachovia did not properly supervise members of the “Red Carpet Club.” These are the firm’s high revenue producing brokers that were not required to undergo Wachovia’s review and approval processes. Wachovia is charged with violating NASD’s rules about communicating with members of the public after it gave brokers a customer letter that inaccurately referenced Pilot Plus as a fee-based, investment advisory service.

If you are an investor who has lost money because of the broker misconduct, please contact Shepherd Smith and Edwards today for your free consultation. We are a securities litigation law firm dedicated to help investors recover their financial losses caused by the inappropriate actions of members of the securities industry.