California filed a lawsuit yesterday accusing the brokerage house Edward D. Jones & Co. of accepting $300 million in improper payments to push its clients toward certain mutual...
LOS ANGELES California filed a lawsuit yesterday accusing the brokerage house Edward D. Jones & Co. of accepting $300 million in improper payments to push its clients toward certain mutual funds.
The announcement came the same day Edward Jones agreed to a $75 million settlement with federal prosecutors in Missouri over allegations related to the company’s mutual-fund sales practices.
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The company also has made a settlement offer to the Securities and Exchange Commission (SEC), the New York Stock Exchange and other regulators, it said in a statement.
California Attorney General Bill Lockyer refused to participate in the settlement and said investors in his state deserved a larger payout.
The lawsuit claims St. Louis-based Edward Jones instituted a policy in 2000 in which brokers would receive commissions, contest points and vacations as incentives for selling certain funds. The mutual-fund companies, in return, paid the firm for preferential treatment.
Such fees are legal, but the arrangements must be properly disclosed. Lockyer said the brokerage firm failed to tell investors of the deal.
A spokeswoman, Regina DeLuca-Imral, said the firm “intends to vigorously defend itself from the charges brought by the California attorney general.”
California’s lawsuit demands Edward Jones surrender the $300 million in improper payments and pay restitution and damages to clients, as well as up to $25,000 in fines for each violation of state securities law.
The mutual funds involved are American Funds, Federated Investors, Goldman Sachs, Hartford, Lord Abbett, Putnam Funds and Van Kampen Investments.
In the Missouri settlement, Edward Jones promised to pay $75 million to the SEC, which will use the money to make restitution to customers. Customers will be able to switch at no cost to other mutual funds, and the company agreed to make changes to avoid future conflicts of interest.
“Edward Jones will take immediate steps to revise customer communications and disclosures to ensure that the firm’s preferred vendor relationships are more fully disclosed,” the company said in a statement.
The firm has sold nearly $6 billion in mutual funds in California since January 2000 to nearly 300,000 accounts. Lockyer said 98 percent of the funds sold during that time were from the preferred group.
At least three other cases have been settled over alleged failures to disclose mutual-fund incentive payments to customers, including a payout of $50 million by Morgan Stanley in November 2003.