The NASD has taken action against a broker whose employees made unsuitable sales of Class B fund shares. The regulatory body said that it has censured and fined McLaughlin, Piven, Vogel Securities, Inc.
(MPV) and James C. McLaughlin, its chairman. The NASD also issued a new investor alert
about the expenses involved in the purchase of Class B shares.
In settling the action both MPV and McLaughlin neither admitted nor denied the allegations, but consented to the entry of findings. MPV also agreed to hire an independent consultant to review and recommend revisions to its supervisory system in connection with its investment company securities business.
The alert includes an expense analyzer that investors can use to compare two funds or classes of funds. It tells investors how those fees compare to industry averages, and highlights when investors should look for breakpoint discounts.
"Today's enforcement action puts brokers on notice that investors must be sold an appropriate class of mutual fund, and our Investor Alert gives investors the tools to educate themselves about the costs involved when purchasing Class B shares," said Mary L. Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "The information in today's alert allows investors to better protect themselves when purchasing mutual funds."
The NASD said that the action's taken against MPV are a "part of a larger, ongoing focus of NASD on the sale of Class B mutual fund shares." It noted that it has brought more than "half a dozen significant enforcement cases" involving sales violations of Class B shares.
The fines levied against MPV amounted to $190,000, including $100,000 for supervisory violations and unsuitable sales of Class B shares of mutual funds, and directed restitution of approximately $90,000 to customers. The NASD also suspended McLaughlin for a period of 30 business days in his capacity as a principal.
According to the NASD, MPV violated suitability rules between June 1998 and May 2002, by recommending purchases of large volumes of Class B shares of mutual funds in the accounts of 21 MPV customers totaling approximately $9.3 million.
It added that the customers could have paid "lower or potentially lower" sales charges available through Class A shares of the same funds.
In one instance, a broker recommended the purchase of Class B shares of mutual funds in four different fund families for a single customer's account instead of the less costly Class A shares, according to the NASD. Those purchases ranged from $375,000 to $650,000 for each of the four fund families.
It also found that James McLaughlin, failed to establish, maintain and enforce an adequate supervisory system that would have detected and prevented the unsuitable large Class B share positions.
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