Fines Collected by NASD Triple in 2004
The NASD on Wednesday said it had collected a record $102 million in disciplinary fines in 2004, triple the amount collected last year, for infractions including improper mutual fund trading, variable annuity abuses and client overcharges.
The Washington-based brokerage industry regulator also said it had filed 1,360 enforcement actions and barred or suspended 830 people from the industry in 2004, roughly the same as in 2003.
Although NASD fines are often small relative to the profit and revenue its regulated firms generate, the regulator often successfully pressures these firms, including many of Wall Street’s biggest names, to strengthen their internal controls to prevent further wrongdoing.
“Firms are anticipating problems better,” said Barry Goldsmith, the NASD’s executive vice president of enforcement, in an interview. “The biggest change we’re seeing is that when we start focusing on an issue, firms are much quicker to change their procedures, at least on a going-forward basis.”
Among the issues the NASD will examine in 2005 are fee-based brokerage accounts, variable annuities, 529 college savings plans and brokers’ giving gifts to mutual fund advisors to win business, Goldsmith said. Industry conflicts of interest remain “a hot topic,” he said.
Formerly known as the National Assn. of Securities Dealers, the NASD regulates 5,222 brokerages with 97,250 branches and nearly 668,000 registered representatives. It works with the Securities and Exchange Commission and the New York Stock Exchange in overseeing financial markets.
Among its activities in 2004, the NASD brought more than 120 disciplinary actions against securities firms regarding improper mutual fund sales practices and trading, including market timing and after-hours “late trading” of fund shares.
The NASD and SEC fined 15 firms a combined $21.5 million for failing to give clients proper discounts on sales charges from big fund sales.
In the area of variable annuities, contracts offered by insurance firms that are often bought as retirement investments, the NASD barred and fined individuals and firms in more than 65 cases. It also charged Waddell & Reed Financial Inc. with providing insufficient supervision to prevent brokers from making unsuitable recommendations to replace annuities.
The NASD also fined Citigroup Inc., Goldman Sachs Group Inc. and two other Wall Street brokerages $5 million each to settle allegations that they overcharged clients on high-yield, or junk, corporate bonds.
