SEC Fines Mutual Fund a Record $25 Million

The Securities and Exchange Commission voted Tuesday to impose a $25-million fine on First Investors Consolidated Corp. to settle charges that the company misled investors about its junk-bond mutual funds.

The settlement was approved by SEC commissioners at a closed meeting here, according to sources close to the agency. It is believed to be the stiffest ever meted out to a mutual fund company.

Without admitting or denying wrongdoing, the New York firm agreed to pay investors $25 million nationwide.

“I just wanted to resolve the litigation,” said Michael Miller, the company’s chief executive, explaining the firm’s decision to settle the case. “We had some problems. We made some mistakes.”

The company estimates that investors lost a total of about $80 million, although some state securities regulators contend that the figure is more.

“Our view is that is certainly a low figure,” said Neal Sullivan, deputy secretary of state in the securities division of the secretary of state’s office in Massachusetts.

Massachusetts and New York have filed suit against First Investors, charging it with fraud, sales misrepresentation, and steering investors into unsuitable investments.

Miller said the $25-million settlement is based on the amount of money that the company made from the sale and management of the two junk-bond funds involved over a six-year period.

The company has been keen to get the case behind it so that it could forge ahead. “You could spend your career looking at this case, trying to look at each investor on an individual basis,” Miller said.

Lawsuits were first filed against First Investors in November of 1990. Since then, the company’s sales force has been cut in half.