Thursday, March 24, 2005

NASD Fines Citigroup, American Express and Chase $21 Million for Improper Sales of Class B and C Shares

Simply amazing. Three of the largest brokerage firms in the country have been fined for improper recommendations and sales of mutual funds to their customers without considering or adequately disclosing that an equal investment in Class A shares would generally have been more economically advantageous for their customers by providing a higher overall rate of return. The firms also had inadequate supervisory and compliance policies and procedures relating to these mutual fund sales according to the NASD.

The charges and settlement involved over 275,000 transactions and 50,000 households! Is the concept of mutual fund breakpoints and CDSC's too complicated for these firms, or was this just another example of improper supervision by some of the largest firms in the country?

If you are not watching breakpoints and the use of Class B and C shares in this day and age, you are simply asking for regulatory problems. The issue is simply too hot to be treated lightly. Brokers need to be certain that they have clear plans and explanations if they are going to use anything other than Class A shares, and firms need to insure that their compliance reviews include a careful look at the use of Class B and Class C shares by customers and investors.
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