finra

FINRA

For Release:
Contact:
Wednesday, March 12, 1997
Nancy A. Condon - (202) 728-8379

 

NASD Regualtion Censures and Fines Smith Barney and Lehman Brothers $250,000 Each; Orders $5.6 Million in Refunds to Customers

Washington, D.C.--NASD Regulation today announced it has censured and fined Smith Barney and Lehman Brothers $250,000 each and ordered the two firms to pay a combined total of more than $5.6 million in refunds, including interest, to customers who were overcharged when they redeemed non-proprietary mutual funds.

 

More than 15,700 accounts were affected by the improper practice of charging commissions where none were allowed. This practice began in October 1990 at Shearson Lehman Brothers and continued until 1995, through Smith Barney's acquisition of the bulk of Shearson's retail operations. As a result, customers of both firms--who in some cases held more than one account--are included in this settlement.

 

NASD Regulation investigators in the New York District Office became aware of the overcharging after discovering and investigating a single customer complaint against Smith Barney. NASD Regulation expanded its investigation which revealed additional problems in the firm's mutual fund redemption practices. Further NASD Regulation scrutiny disclosed that the problem existed prior to the August 1993 acquisition of Shearson by Smith Barney, thereby causing NASD Regulation to expand its probe to include Lehman Brothers.

 

"Today's settlement is important for investors and an excellent demonstration of the value customer complaints play in NASD Regulation's disciplinary process," said NASD Regulation President Mary L. Schapiro. "In addition to refunding almost $4.3 million in overcharged commissions, customers will receive more than $1.3 million in interest on those funds," Schapiro said. "With more Americans using mutual funds as their primary investment tool today, NASD Regulation is committed to insuring that every customer is treated fairly."

 

Without admitting or denying NASD Regulation's findings, Smith Barney and Lehman Brothers, in certain instances, charged improper commissions for redeeming non-proprietary mutual funds in addition to any appropriate load. The commissions were disclosed on the customer's confirmation ticket.

 

"This case underscores the need for customers to inspect their trading confirmations closely, and to report any suspected problems immediately," Schapiro added. 

Smith Barney Lehman Brothers
Time Period 8/1/93-8/28/95 10/1/90
Transactions 7,159 13,310
Accounts Affected (approximate) 5,165 10,589
Excess Commissions $2,325,333 $1,963,485
Interest $358,680 $959,997
Total Refunds $2,684,013 $2,923,482

 

Payments to Smith Barney's customers have already been made. Existing clients have received credits to their accounts and former clients were issued checks. Lehman Brothers will make its payments to its customers over the next 180 days, and will provide NASD Regulation with satisfactory proof of such payments.

 

In agreeing to the sanctions, both Smith Barney and Lehman Brothers waived their right to appeal.

 

All Smith Barney investors with questions should contact Leslie Klenk at Smith Barney, (212) 816-8545.

 

Investors and other interested parties can obtain more information about NASD Regulation by calling (800) 289-9999.