US Securities Firms Ordered to Repay Sales Charges

Matthew Smith

14 December 2006

US securities firms Edward Jones, RBC Dain Rauscher, Royal Alliance, and Morgan Stanley were collectively fined $850,000 yesterday and ordered to pay back an estimated $43.8 million in sales charges that their clients were eligible to have waived. The National Association of Securities Dealers announced yesterday it had fined the four firms and ordered the payment of remediation to thousands of their clients who were the benefit of available NAV transfer programmes. According to a NASD statement the clients qualified for, but did not receive, the benefit available to them through a mutual fund-led programme that waived sales charges for certain shares in funds purchased during a period. The Net Asset Value transfer programme, as it was known, allowed investors, who paid a sales charge, to sell their investments and repurchase shares of new mutual funds at net asset values between 2002 and 2004. "The failures on the part of Edward Jones, RBC Dain Rauscher, Royal Alliance, and Morgan Stanley to adequately supervise the identification and implementation of NAV transfer programs deprived their customers of substantial discounts on mutual fund purchases," said James Shorris, NASD executive vice president and head of enforcement. Based on estimates provided by each firm, Edward Jones will pay $25 million; RBC Dain Rauscher will pay $6.8 million; Royal Alliance will pay $1.6 million; and Morgan Stanley will pay $10.4 million. All of the estimates are net of interest. Each firm during the relevant period failed to have systems reasonably designed to ensure that customers received the discount pricing where appropriate, NASD said.