NASD Fines AXA Advisors $250,000 for Failure to Waive Sales Charges on Customers' Mutual Fund Transfers
Washington, D.C.—NASD announced today that it has censured and fined AXA Advisors, LLC $250,000 for failing to obtain sales charge waivers for mutual fund customers through net asset value (NAV) transfer programs. NASD also found that AXA, located in New York City, failed to have an adequate supervisory system in place to identify and provide customers with sales charge waivers to which they were entitled.
Some mutual fund families offer NAV transfer programs that eliminate front-end mutual fund sales charges for certain customers. Under the programs, customers who redeem fund shares for which they paid a sales charge may use the proceeds within prescribed time periods to purchase Class A shares of a new mutual fund at NAV, that is, without paying another front-end sales load. Investors who qualify for NAV transfer programs have no reasonable basis to purchase any class of shares other than Class A shares. NAV transfers are explained more fully in an Investor Alert, Net Asset Value Transfers: Look Before You Leap Into Another Mutual Fund, http://www.nasd.com/Investor/Alerts/alert_nav_transfers.htm.
AXA failed to identify certain NAV transfer programs and give customers their benefits. As a result, eligible investors purchased Class A shares and paid front-end sales charges that they should not have paid, or purchased Class B shares, which subjected them to contingent deferred sales charges and higher fees. Specifically, AXA failed to identify NAV transfer programs offered by Pacific Investment Management Company LLC (PIMCO) and Eaton Vance Distributors, Inc. The PIMCO transfer program was described in PIMCO's Shareholder's Guide, and the Eaton Vance program was described in its funds' prospectuses.
"When investors are eligible for a discount or sales charge waiver, securities firms must provide them, without exception," said Mary L. Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "Securities firms must have the necessary systems and procedures to identify these transfer programs and deliver their benefits to customers. To this end, NASD is initiating a broad-based review to determine whether other firms are meeting their obligations to provide sales charge waivers to their customers."
NASD determined that from February 2000 through July 2003, AXA earned more than $700,000 in revenue on more than $18 million invested by the customers of the firm in two different mutual fund families offering NAV transfer programs - PIMCO and Eaton Vance. As part of the settlement, AXA was ordered to provide full restitution to all customers who paid sales charges on purchases that were subject to these programs from February 2000 through February 2004. AXA is also required to retain an independent consultant to review and recommend revisions to its supervisory and compliance procedures and systems in this area.
NASD also charged AXA and Erik Mosholt, a Senior Vice President of the firm's Investment Products Group, with supervisory violations. AXA failed to have adequate systems or procedures in place to identify and determine the availability of NAV transfer programs. In fact, this group, whose responsibilities included conducting due diligence concerning all third-party mutual funds sold by the firm, did not have any written procedures regarding the functions for which the group was responsible. Mosholt and AXA were jointly fined $50,000, and Mosholt was censured.
In settling these charges, AXA and Mosholt neither admitted nor denied the allegations.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2003, the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also continue to access this service by calling 1-800-289-9999.
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