NASD Regulation Fines Amsouth Investment Services $150,000 for Mutual Fund Sales Violations
Washington, D.C.--NASD Regulation, Inc., today announced that it has fined AmSouth Investment Services, Inc., $150,000 and censured the Birmingham, Alabama. firm in connection with the marketing and sale of various mutual fund products.
AmSouth also consented to NASD Regulation's findings that the firm improperly paid transaction-related compensation to employees of its bank affiliate to generate business for the brokerage business, in violation of NASD Regulation rules.
NASD Regulation found that AmSouth neither documented its performance of a due diligence review of certain mutual funds nor maintained new account documents for certain customers. Therefore, the firm could not demonstrate that these investments were suitable for its customers. AmSouth also made misleading written statements about one of the funds to certain customers, and failed to prepare and maintain adequate books and records concerning the sale of the funds.
Many of the sales-practice violations occurred because AmSouth's supervision system was inadequate. AmSouth also did not file required statistical and summary information on customer complaints with NASD Regulation on time.
"Broker/dealer firms must be especially vigilant and ensure that customers who purchase mutual funds on the premises of banks understand the risks and rewards of those investments," said NASD Regulation President Mary Schapiro. "We are continuing our efforts to safeguard investor interests by focusing our investigations on these important issues and by initiating disciplinary actions when appropriate. Our recent rule proposals concerning the conduct of our member firms who sell securities on the premises of financial institutions is a significant effort to focus on disclosure and investor protection issues."
AmSouth has also agreed to a compliance audit of internal policies and procedures by an independent party. The firm will also develop a revised Supervision and Compliance Manual, which will include a clearly defined organization structure and indicate various areas of supervisory responsibility. The revised manual will be subject to review by the independent party.
The audit results and the revised manual are subject to review by NASD Regulation.
The disciplinary action was authorized by NASD Regulation's District 5 Business Conduct Committee. Schapiro praised the cooperative investigative efforts of the District 5 Office and the Alabama Securities Commission, which conducted a joint investigation. "This is an excellent example of NASD Regulation's commitment to coordinate enforcement efforts with state regulators," Schapiro said.