When Edward Jones was accused last year of steering clients to certain mutual fund families without disclosing that the firm received multimillion-dollar payments from those funds, it denied the charges.
Still, Edward Jones insiders acknowledged that the firm would try to limit the damage by settling with regulators at a time “that the news won’t make a big splash.”
It turns out that time is a few days before Christmas.
Edward Jones confirmed that it has agreed to a $75 million settlement with the SEC, the NASD and the New York Stock Exchange as punishment for failing to disclose to clients information about the firm’s revenue-sharing arrangements with mutual funds. It is the largest ever brokerage fine for revenue sharing; Morgan Stanley paid out $50 million in late 2003.
“We’re hoping this takes care of it, and this is the end of it,” says an Edward Jones source.
That is looking unlikely. California Attorney General Bill Lockyer has declined to participate in the settlement. He has filed a civil suit against Edward Jones, charging the firm took in more than $300 million in payments over the last five years.
“Edward Jones broke the law and broke faith with the working families of California who placed their trust in the company's investment recommendations,” Lockyer said. “The documents we have obtained show Jones blatantly disregarded investors' interests as it collected some $300 million in secret payments from mutual funds. California law requires full disclosure of information that raises questions about whether broker/dealers' recommendations serve clients' best interests. Investors deserve nothing less. I will settle for nothing less from Edward Jones.”
Meanwhile in Edward Jones’ home state of Missouri, the state attorney general’s office has said it will not file a suit if the firm meets certain requirements over the next two years, including allowing clients to change their mutual funds free of charge.
Edward Jones had $2.4 billion in net revenues in 2003, $1.1 billion of which came from mutual funds.