NASD Charges Eight Firms with Directed Brokerage Violations, Imposes Fines Totaling More Than $7.75 Million

October 10, 2005
PRNewswire

WASHINGTON, DC -- NASD announced today that it has fined eight broker-dealers -- including seven retail firms and one mutual fund distributor -- more than $7.75 million for directed brokerage violations. The sanctions announced today are the latest actions resulting from an NASD enforcement sweep focusing on the receipt or payment of directed brokerage in
exchange for preferential treatment for certain mutual fund companies.

All of the cases involve violations of NASD's Anti-Reciprocal Rule, which prohibits firms from favoring the sale of shares of mutual funds on the basis of brokerage commissions received by the firm. Among other things, the rule prohibits a firm from recommending funds or establishing preferred lists of funds in exchange for receipt of directed brokerage....

...NASD found that the seven retail firms operated "preferred partner" or "shelf space" programs that provided benefits to specific mutual fund complexes in return for directed brokerage. The benefits to the mutual fund complexes included, in various cases, higher visibility on firms' internal websites, including inclusion on internal lists identifying the funds as participants in the programs; increased access to firms' sales forces; participation in "top producer" or training meetings, and promotion of the preferred funds on a broader basis than was available for other funds...

...NASD also censured and fined one mutual fund distributor, Lord Abbett Distributor LLC. Lord Abbett paid for some of its shelf space obligations by having its affiliated investment adviser direct portfolio transactions to or for the benefit of firms to which the distributor owed revenue sharing fees.

The firms and their respective fines are as follows (firms noted with asterisks are wholly owned subsidiaries of National Planning Holdings, Inc.):

• IFC Holdings, Inc.* - $1,520,000 Tampa, FL
• Commonwealth Financial Network - $1,400,000 Waltham, MA
• National Planning Corporation Inc.* - $1,308,000 Santa Monica, CA
• Mutual Service Corporation - $1,300,000 W. Palm Beach, FL
• Lincoln Financial Advisors Corporation - $950,000 Ft. Wayne, IN
• SII Investments, Inc.* - $658,500 Appleton, WI
• Investment Centers of America, Inc.* - $363,500 Appleton, WI
• Lord Abbett Distributor, LLC - $255,000 Jersey City, NJ