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Thursday, March 16, 2006

American Funds To Battle NASD

by: Armie Margaret Lee

American Funds is taking the road less traveled. Next week, the Los Angeles-based mutual fund firm will challenge accusations brought by the NASD that it improperly steered directed commissions to top producing brokerages.

The Los Angeles Times reported Thursday morning that American Funds is set to appear before a hearing panel of the NASD on Monday to dispute the claims. In doing so, American Funds is veering away from the path taken by its peers, which have opted to resolve regulators' complaints by paying fines without admitting or denying any wrongdoing.

In February 2005, NASD filed a case against American Funds, claiming that it broke securities rules from 2001 to 2003 when it gave stock trading business to brokerages that promoted its funds to clients.

According the regulator, American Funds sent $100 million worth of commissions to 50 broker-dealers as a reward for selling the firm’s 29 mutual funds. The directed-brokerage payments were also an inducement for future sales of the funds, the NASD alleged.

American Funds, however, maintained that it never had such formal agreements with broker-dealers. What it had were “internal, informal targets” for directing trades, which was allowed under the rules, the firm said.

So far, 30 fund companies and brokerages have settled similar cases with the NASD.

American Funds, which has over $850 billion in stock and bond fund assets under management, is facing similar charges brought by California Attorney General Bill Lockyer. 

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