Fines by NASD Up 21% in 2005
The brokerage industry’s chief regulatory group said Tuesday it collected a record $125.4 million in disciplinary fines this year, 21% more than in 2004, for violations including abuses in sales of mutual funds and variable annuities.
The Washington-based NASD also said it filed 1,412 enforcement actions in 2005, up 1% from the previous year, and barred or suspended 737 people from the securities industry, down 12%. It closed 9,150 arbitration cases and 1,700 mediation cases.
NASD fines typically are small relative to the profits that its regulated firms, including Wall Street’s biggest names, generate. But the regulator has the power to pressure the firms into adopting reforms to thwart further wrongdoing.
“While the numbers appear fairly flat from last year, we’ve seen firms make a tremendous effort to comply with rules,” said Mary Schapiro, the NASD’s vice chairman. “The costs and reputational risks from noncompliance have risen, and firms appreciate that.”
The NASD focused on investment niches such as variable annuities and 529 college savings plans in 2005, and will continue to review practices in those areas in 2006, Schapiro said. The NASD also plans to modernize its examination programs and push brokerages to use the Internet to make streamlined mutual fund disclosures, she said.
In 2005, mutual funds were a major area of disciplinary activity for the regulator, formerly known as the National Assn. of Securities Dealers.
Twenty-six retail brokerages paid nearly $55 million in fines to settle charges that they provided favored sales treatment for select mutual funds in exchange for brokerage business.
The NASD also fined a number of firms for selling investors Class “B” and “C” fund shares when Class “A” shares might have cost the investors less over time.
In the variable annuities business, Waddell & Reed Financial Inc. agreed to pay a $5-million fine and $11 million in restitution to settle charges that it improperly pressured thousands of customers to exchange the products. People often buy annuities as retirement investments, with taxes deferred until withdrawal.
