NASD Files Enforcement Actions Involving Unsuitable Sales of Mutual Funds
Washington, DC — NASD today announced five new enforcement actions as part of its ongoing focus on the sale of Class B mutual fund shares. Four of these cases are settlements in which the individuals agreed to suspensions from the securities industry for up to nine months, and fines totaling almost $120,000. The fifth action is a complaint where the broker is contesting the charges.
In each of the settled cases, the brokers violated NASD's suitability rule by recommending their customers purchase of B share mutual funds instead of A shares. The purchase of A shares would have eliminated or reduced front-end sales charges through breakpoint discounts available at various dollar amounts; resulted lower ongoing expenses than those available through B shares; and would have avoided the contingent deferred sales charges associated with B shares. The differences between A and B share mutual funds are explained more fully in an Investor Alert recently published by NASD: Investor Alert - Class B Mutual Fund Shares: Do They Make the Grade?
"In recommending mutual funds with different classes to investors, the broker must put his customer first. It is critical that a broker consider the costs of A shares versus B shares for the customer, and not the profit for the broker," said Mary L. Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "NASD will continue to bring sales practice cases such as these when investors are sold mutual fund products that are unsuitable."
The cases announced today are:
- Qimat R. Goyal, associated with Marsco Investment Corp. of Roseland, NJ, was fined $48,346 and suspended for nine months for unsuitable mutual fund B share recommendations to five customers.
- Keith Korch, associated with Tucker Anthony, Inc.'s Sturbridge, MA office, was fined $60,000 and suspended for 30 days for recommending the purchase of $3.5 million of mutual fund B shares to a customer. Given the dollar amount invested, the investor would have been able to purchase the A shares without any up-front sales charge.
- James Wheeler and James Wheeler & Co., Inc. of Denver, CO: a fine of $8,600 to be paid by the firm, a suspension of Wheeler for 10 business days and various remedial undertakings, including a requirement that before recommending B shares in the future the firm prepare and give to the customer an analysis of the relative costs of the two classes. The respondents recommended unsuitable purchases of B shares in 20 funds from 15 fund families to a customer who should have purchased A shares.
- Robert Barmen, associated with UBS Financial Services, Inc.'s Pittsburgh, PA office, was fined $2,500 and suspended for 10 business days for unsuitable mutual fund B share recommendations to a customer.
- Paul Pallo, a registered representative with Staten Securities of Staten Island, NY, was charged in a complaint with selling mutual fund B shares to two customers when Class A shares would have been more suitable.
Under NASD rules, an individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, order to pay restitution, censure, suspension, or bar from the securities industry.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an e-mail through NASD's Web Site at www.nasd.com.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.