NASD Regulation Fines Kemper Distributors $100,000 for Mutual Fund Advertisement Violations
Nancy A. Condon
(202) 728-8379 (202) 974-2850
Washington, D.C.—NASD Regulation, Inc., announced today a settlement in which it censured and fined Kemper Distributors, Inc., $100,000 for running inaccurate mutual fund advertisements and for violating other NASD advertising-related rules.
NASD Regulation found that, from April through September 1997, Kemper published eight advertisements containing inaccurate graphs relating to the performance of the Kemper-Dreman High Return Equity Fund. The eight advertisements, placed in The Wall Street Journal, Barron’s, Investor’s Business Daily, and the Chicago Sun-Times, contained graphs depicting the performance of a hypothetical $10,000 investment in the fund. Due to unequal distances between plot points on the graphs, many of the ads did not accurately portray increases and decreases in the value of the investment. Despite being cautioned by NASD Regulation’s Advertising/Investment Companies Regulation Department not to use ads with these types of errors, the firm continued to run problematic ads.
Several of the ads showed dollar values along the vertical axis that did not correspond to actual performance over time. For example, based on the $10,000 hypothetical investment at the fund’s inception, the return appeared to be approximately $29,000 in the graph, when in fact it was $22,000. In addition, when Kemper updated several of its performance ads, it continued to use the old graph lines rather than to re-draw and re-plot them.
Kemper also published an advertisement in March 1997 issues of Barron’s, The Wall Street Journal, and Investor’s Business Daily, which contained a straight line sloping upward from the lower left to the upper right of the advertisement. At the beginning of the line, the advertisement stated, "you are here," and at the top of the line, "your future is here." The advertisement’s text stated, in part, "Any mutual fund company can tell you a comfortable future follows a long-term investment timeline. But precious few companies have long-term performance history to back up their promises." The advertisement violated the NASD’s advertising rule because the straight upwardly sloping line did not convey the risks of fluctuating prices inherent in investing.
In addition, the firm used advertisements and sales literature without first obtaining registered principal approval and failed to properly file items with NASD Regulation’s Advertising/Investment Companies Regulation Department.
In settling this matter, Kemper neither admitted nor denied NASD Regulation’s findings.
In addition to a fine and a censure, Kemper has undertaken, for a period of six months, to file with NASD Regulation, prior to use, all advertisements depicting performance information through the use of graphs, bar charts, or pie charts.
This case was brought by NASD Regulation’s Enforcement Department with assistance from the Advertising/Investment Companies Regulation Department in Washington, DC.
Investors can obtain more information about NASD Regulation as well as the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999.
NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, Inc., The Nasdaq Stock Market, Inc., and the Amex are subsidiaries of the NASD, the largest securities-industry self-regulatory organization in the United States.