First it was the firms, now it’s the brokers. The carnage from the mutual fund scandal continues as regulators have moved over from settlements with fund companies and brokerage houses for alleged trading and sales abuses and are now aiming their quiver at individual registered reps.
In the first case of its kind, NASD announced today that it has fined Securities America of Omaha, Neb. $375,000 for improperly sharing directed brokerage commissions from a mutual fund firm with Michael Bullock, a former Securities America broker in Los Angeles. Regulators also found that the firm failed to adequately supervise Bullock’s communications with his union-sponsored retirement plan clients to ensure that any additional compensation was disclosed.
Separately, NASD charged Bullock with improperly receiving directed brokerage commissions and other compensation totaling more than $280,000. Bullock was also charged with misrepresenting and failing to disclose this compensation to his union retirement plan clients; at the same time he was advising those clients to maintain or include the fund company’s mutual funds in the retirement plans they offered to working and retired union members.
While it’s not surprising that the NASD and SEC are going after brokers for their role in alleged schemes to bilk investors, one has to wonder when the fallout from Eliot Spitzer’s crusade will dissipate. And what about those brokers who were acting under the direct orders of their superiors who seem to have gotten a free pass in all of this?
Remember, revenue sharing and directed brokerage had been generally accepted practices for many years only to be suddenly deemed wrong in the aftermath of the trading scandal. Directed brokerage is now illegal, and revenue sharing must be disclosed. Read the NASD enforcement action to make sure you’re in the clear...or if you need a lawyer.
