The settlement of improper mutual-fund sales practices allegation cost three brokerage firms and a mutual-fund company $81 million.
These settlements are the latest in a string of cases originating from broad investigations led by the Securities and Exchange Commission and the National Association of Securities Dealers. Citigroup Global Markets Inc. agreed to pay $20 million as a fine to settle the accusation by the SEC that its Smith Barney brokerage unit concealed from its clients the information about payments it received from 75 mutual-fund companies for touting those firms’ funds. The SEC claimed that Smith Barney sold funds only from those companies that gave their consent to make these payments.
The agreement resolves the accusation that the Citigroup Inc. unit failed to provide truthful information about costs bound with classes of mutual-fund shares which caused the clients to overpay. Citigroup reached an agreement with the National Association of Securities Dealers to pay a $6.25 million fine and make reimbursement to clients hurt by its practices. Citigroup agreed to the settlements but it did not deny or admit any wrongdoing.
The NASD also said American Express Financial Advisors, a unit of American Express Co., agreed to a $13 million fine for fund sales practices, and a brokerage unit of J.P. Morgan Chase & Co. agreed to pay a $2 million fine for similar actions, according to the Wall Street Journal. Both firms also will have to make reimbursements to investors. Though neither company admitted or denied wrongdoing.
Alongside with these settlements, Putnam Investments, a unit of Marsh & McLennan Cos., agreed to pay $40 million in fines to settle civil-fraud charges. The SEC accused Putnam of failing to reveal to investors and to its funds’ board that trading commissions paid out of mutual-fund assets were used to pay brokers for promoting the firm’s funds. While using commissions as a substitute for cash, Putnam made the payments from shareholder assets instead of its own money. Putnam had such deals with more than 60 brokerage houses, according to the SEC.